Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, May 16, 2009

Common principles for an economic assessment of the compatibility of State aid under Article 87.3 EC-Treaty

Posted by D. Daniel Sokol

Today, the European Commission launched a consultation process on a staff working paper called "Common principles for an economic assessment of the compatibility of State aid under Article 87.3 EC-Treaty".

Interested parties are welcome and may submit their comments until June 11, 2009 preferably by email to stateaidgreffe@ec.europa.eu.

Submissions should clearly indicate the reference HT 1727. Please note that all submissions will be published on the website of the European Commission.

Please find below the links to the Commission's website and its working paper:

http://ec.europa.eu/competition/state_aid/reform/reform.html#ecas


http://ec.europa.eu/competition/state_aid/reform/economic_assessment_en

.pdf

HT: Christina Hummer

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

Bates White 6th Annual Antitrust Conference

Posted by D. Daniel Sokol

Bates White will hold its 6th Annual Antitrust Conference on June 1 in Washington DC. 

Session 1: Evaluating evidence on the competitive effects of consummated mergers

  • William E. Kovacic
    FTC Commissioner
  • Joseph Farrell
    Director of the Bureau of Economics, FTC
  • Maribeth Petrizzi
    Litigation II Section Chief, DOJ
  • D. Bruce Hoffman
    Partner, Hunton & Williams
  • T. Scott Thompson
    Partner, Bates White
  • George A. Rozanski (Moderator)
    Partner, Bates White

The session will begin with a brief presentation on methods and potential uses of retrospective analysis, including recent case studies. We will take a practical look at the purposes of and methods for evaluating the effects of consummated mergers:

  • How can retrospective analysis inform merger enforcement policy?
  • What is the appropriate role of retrospective analysis for defending or challenging proposed mergers?
  • What kinds of evidence of competitive effects from consummated mergers is persuasive?
  • What are the potential sources of bias in retrospective studies?
  • When is it appropriate or inappropriate for enforcement agencies to compel production of data and other evidence for purposes of retrospective review and how can the rights and privacy of private parties be preserved?

Session 2: Taking enforcement action against consummated mergers: when is it appropriate and how should it be done?

  • J. Thomas Rosch
    FTC Commissioner
  • Lars-Hendrik Röller
    ESMT President, former Chief Competition Economist, EC
  • Clifford H. Aronson
    Partner, Skadden, Arps, Slate, Meagher & Flom
  • Robert F. Leibenluft
    Partner, Hogan & Hartson
  • Christine Wilson
    Partner, O’Melveny & Myers
  • Mark J. Botti (Moderator)
    Partner, Akin Gump Strauss Hauer & Feld

The agencies have demonstrated a willingness to revisit consummated transactions for purposes of possible enforcement litigation. This raises questions of enforcement thresholds, legal procedures, and post-merger remedies:

  • When, if ever, is a consummated merger safe from legal challenge?
  • What legal, practical, and procedural issues arise for agencies and private parties in the course of such reviews?
  • What conditions warrant the ex-post review of a merger?
  • What are appropriate remedies for consummated mergers found to have had anticompetitive effects?
  • How should retrospective analysis be used in reviewing, challenging and litigating consummated mergers?

Reception, dinner, and keynote address

To cap off the day, Bates White and ESMT Competition Analysis will host a reception and dinner. It will feature opportunities to interact with leading academics and other antitrust attorneys in an informal setting.

FTC Commissioner J. Thomas Rosch will give the keynote address on “Antitrust Law Enforcement: What to do About the Current Economics Cacophony.”

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

Friday, May 15, 2009

On Pricing and Vertical Organization of Differentiated Products: The Case of Soybean Seed Industry

Posted by D. Daniel Sokol

Guanming Shi (Wisconsin - Agricultural and Applied Economics) Jean-Paul Chavas (Wisconsin - Agricultural and Applied Economics) have thoughts On Pricing and Vertical Organization of Differentiated Products: The Case of Soybean Seed Industry.

ABSTRACT: This paper investigates the pricing and vertical organization of differentiated products under imperfect competition. In a multiproduct context, a Cournot model is used to examine how substitution/complementarity relationships among products and vertical structures can affect the exercise of market power. This motivates a generalization of the Herfindahl-Hirschman index (termed VHHI) capturing how market concentration and vertical structures interact to influence prices of differentiated products. The analysis is applied to pricing of soybean seeds in the US over the period 2000-2007. The analysis considers two vertical structures employed by biotech firms: vertical integration and licensing. The econometric analysis finds evidence that vertical organization has significant effects on seed prices. These effects are found to vary depending on the institutional setup and the bundling of genetic material. The empirical evid! ence shows that complementarity and economies of scope can reduce the effects of market concentration on prices.

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

Illustrative Price Rises from Mergers in Differentiated Products Markets

Posted by D. Daniel Sokol

David Parker (Frontier Economics) offers some thoughts on Illustrative Price Rises from Mergers in Differentiated Products Markets.

ABSTRACT: The approach taken by U.K. competition authorities to analyzing the extent of merger concerns in differentiated products markets has evolved over time. An approach which has been applied in an increasing number of cases, especially by the Office of Fair Trading (“OFT”), involves calculating illustrative price rises from a combination of the “diversion ratio”—the proportion of sales lost by one firm following a price increase that are recaptured by another firm—and the variable profit margin. This technique can identify mergers of concern more accurately in some circumstances than through the use of market share and concentration measures alone. It also allows the focus of the inquiry to be more on the competitive effects analysis than on market definition, although market definition will likely continue to play an important filtering role. The validity of the technique is based on several assumptions, as this is a form of simplified merger simulation. However, in practice these assumptions are rarely scrutinized in detail to see whether they hold in specific cases, and, taken in combination, the assumptions usually employed by the authorities may lead to some mergers being blocked which would ordinarily appear not to be of genuine concern.

This article concentrates on unilateral effects concerns arising from mergers, typically measured as a post-merger increase in prices or an equivalent reduction in quality, range, innovation, or other aspects of the offer. A starting point for merger investigations is the market shares of the firms involved. However, where firms sell products that are differentiated, market shares can be a poor proxy for merger concerns, as customers may not view the firms as being close substitutes even if they are in the same market.

To make more accurate assessments of the prospects for merger concerns, one needs to understand better how customers view the substitutability of the products in question. One technique for doing this is the calculation of “illustrative price rises” using two key items of information—the pre-merger margin and the diversion ratio between the merging firms. This technique, a form of simplified merger simulation, is starting to become more common in U.K. merger inquiries, particularly at the Phase I OFT stage (although the approach was first used in the United Kingdom at the Phase II Competition Commission (“CC”) stage).

This article describes the illustrative price rises technique, identifies the data required to employ it, and briefly explains how these data might be captured in practice. For the illustrative prices generated by the technique to be valid, a number of assumptions must be satisfied. The article outlines these assumptions and shows that these are often taken as given, without serious consideration of whether they apply in a particular situation. Moreover, we argue that the assumptions typically employed, when taken in combination, appear to raise the bar extremely high, leading to a concern that unproblematic mergers may be blocked.

At present, the evolution of the use of this technique in the United Kingdom has taken place in a somewhat ad hoc manner on the basis of individual cases. The main aim of this article is to stimulate a debate about the use in theory and in practice of the illustrative price rises technique, in order that the issues above may be explored in a transparent manner outside the pressures of specific cases.

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

Competition Advocacy in Time of Recession - The UK Competition Commission's Approach

Posted by D. Daniel Sokol

Competition Commission Chairman Peter Freeman provided his thoughts on Competition Advocacy in Time of Recession - The UK Competition Commission's Approach at the International Competition Forum, Warsaw.

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

Institutional Aspects of European Commission Guidance in the Area of Antitrust Law

Posted by D. Daniel Sokol

B.M.P. Smulders (European Commission, DG Competition) has written on Institutional Aspects of European Commission Guidance in the Area of Antitrust Law.

ABSTRACT: From an institutional law perspective, the question arises how to qualify the more than thirty existing communications, notices and guidelines which the Commission has issued in the area of antitrust law. It is uncontested that they are not legislation adopted by the Commission on the basis of an empowerment granted by the Council of Ministers under Article 83 EC and that is the reason why the Commission itself often refers to them as “non regulatory documents.” But do the documents also produce legal effects?

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

Thursday, May 14, 2009

Competition Policy in Distressed Industries

Posted by D. Daniel Sokol

Carl Shapiro (DOJ Antitrust) presented a speech on Competition Policy in Distressed Industries.  It his first speech in his government capacity.  It is worth a read.

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

Antitrust and Associations Handbook

Posted by D. Daniel Sokol

The ABA Antitrust Section has put out Antitrust and Associations.

BOOK ABSTRACT: Handbook Significant segments of American business and professions are represented by trade and professional associations. But association activities raise potential antitrust risks and their exposure to antitrust challenge has increased proportionately. This Handbook helps association counsel and executives help to understand the antitrust issues associated with association activities and minimize their risk. It begins with a discussion of basic antitrust principles and the system of public and private remedies for violations, before turning to more detailed treatment of the analytical framework applicable to collaborative activities involving competitors. Subsequent chapters provide in-depth discussion of problems that are routinely encountered by practitioners counseling trade associations, including membership criteria and expulsion, information collection and dissemination, industry codes of ethics, standards development, and joint petitioning of the government. This book serves as a general and accessible guide to the application of U.S. federal and state antitrust laws to the activities of trade and professional associations and should be an invaluable single-volume resource for anyone advising trade associations.

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

Colluding Through Suppliers

Posted by D. Daniel Sokol

Salvatore Piccolo (University of Naples "Federico II", CSEF) discusses Colluding Through Suppliers.

ABSTRACT: In a dynamic game between N retailers and a large number of suppliers, I show that inefficient contracting emerges as a mechanism to implement collusion among retailers, building on the natural ‘complementarity’ between retail and wholesale prices. When efficient collusion is not sustainable, this complementarity allows retailers to rely on inefficient input supply, entailing double marginalization and negative franchise fees, to squeeze the wedge between collusive and deviation profits. I also study the role of communication on the equilibrium outcomes of games where retailers have the initiative. It turns out that communication is indeed fundamental to strengthen cartels' sustainability, although generating efficiency losses.

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

Reflections on Bush Administration M&A Antitrust Enforcement and Beyond

Posted by D. Daniel Sokol

Ilene Knable Gotts (Wachtell, Lipton) & James Rill (Howrey) have a great new piece on Reflections on Bush Administration M&A Antitrust Enforcement and Beyond.

ABSTRACT: The election of Barack Obama as President—and the culmination of the Bush Administration—mark an appropriate time to reflect on the Bush Administration’s legacy for Merger and Acquisition (“M&A”) antitrust enforcement. As noted below, the past eight years have seen impressive improvements in the merger review process, use of economics and reliance on evidence in merger analysis, and U.S. participation in international policy fora. Increased transparency has been an important element in achieving these objectives.

Nevertheless, charges have been made by some antitrust economists and practitioners that federal antitrust enforcement has been lax during the Bush Administration. The record, however, critics rely upon is far from clear, particularly given the complexities in trying to make those comparisons. Paradoxically, while attacking the agencies for under-enforcement, the critics point to a poor track record in court to suggest that “anything goes” on the merger front. Perceptions of enforcement level can be skewed by a few high-profile decisions by the enforcement agencies not to challenge a merger as well as a limited set of court decisions that were highly fact-specific and of marginal bearing for future jurisprudence. Moreover, such perceptions are often lagging indicators of present or future outcomes.

This article will describe some of the achievements during the past eight years that the new antitrust leadership can build upon. We will also discuss the perception of lax enforcement, as well as what we believe is the actual status quo, as a basis for forecasting what future enforcement policy might be. Finally, this article recommends some changes the new administration can undertake that would increase the efficiency and efficacy of merger enforcement.

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

The Economic Basis for Israeli Antitrust Law

Posted by D. Daniel Sokol

Adi Ayal of Ben Gurion University - Faculty of Law describes The Economic Basis for Israeli Antitrust Law.

ABSTRACT: This chapter aims at elucidating the economic basis for antitrust law generally, and the Israeli Restrictive Trade Practices Law specifically. It follows antitrust's intellectual progression, beginning with standard price theory underpinning static efficiency analysis, thereafter moving through dynamic (multi-period) analysis and 'new economics' of information and network effects.

Each part contains three sections: basic theory, 'question marks' based on critique of the first, and 'back to law' - discussion of the difficulties of implementation.

The purpose of the chapter is both to introduce the economics of antitrust to the uninitiated, and to raise questions central to debate regarding current antitrust doctrine.

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

Wednesday, May 13, 2009

How Do (and Should) Competition Authorities Treat a Dominant Firm’s Deception?

Posted by D. Daniel Sokol

Maurice Stucke of the University of Tennessee Law School asks How Do (and Should) Competition Authorities Treat a Dominant Firm’s Deception?

ABSTRACT: Deception arises in various contexts. At times, a monopolist’s deception, while immoral, may not (or only remotely) impair competition. This article discusses deception, its potential anticompetitive effects, and the legal institutions to deter and punish deception. This article next evaluates the U.S. courts’ varying legal standards for evaluating a monopolist’s deception under the Sherman Act, and proposes a “quick-look” legal standard for evaluating such conduct.

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

Likelihood of Success is Still Part of the Law, Even Under 13(b)

Posted by D. Daniel Sokol

Paul Denis (Dechert) & Craig Falls (Dechert) explain that the Likelihood of Success is Still Part of the Law, Even Under 13(b).

ABSTRACT: The confusion following in the wake of the now infamous trio of opinions in Federal Trade Commission v. Whole Foods Market, Inc. has allowed some to argue that the FTC faces a lesser burden under Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), to show likelihood of success than is faced by DOJ under Section 15 of the Clayton Act, 15 U.S.C. § 25 or private litigants under traditional equity standards. But the legislative history and prior case law make clear that the FTC is on exactly the same footing as other litigants, no better and no worse.

Given the tortured evolution of the law on this point, it may well be time for Congress to adopt the recommendation of the Antitrust Modernization Commission and clarify that the same standard applies to all preliminary injunction litigants.

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

Malcolm Nicholson Joins Competition Commission as Member

Posted by D. Daniel Sokol

Malcolm Nicholson joins the CC from Slaughter and May, where he has specialized in competition matters for more than 25 years.

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

Square Pegs in Round Holes: The Interaction between Judges and Economic Evidence

Posted by D. Daniel Sokol

On the Supreme Court short-list is Diane Wood (7th Circuit, University of Chicago Law) who writes on Square Pegs in Round Holes: The Interaction between Judges and Economic Evidence.

ABSTRACT: Competition law is not the only area in which it is essential that decision-makers understand economic evidence, but it is surely one of the most important. After all, the concept of competition itself conjures up images of rivalry for some sort of prize, and in the area of competition law, that prize is success in the market. Through the magic of microeconomic analysis, it has become well accepted that the competitive process between or among producers yields not only a winner from the producer standpoint, but more importantly yields benefits to consumers. The latter benefits, which normally take the form of lower prices, better quality, superior ancillary services, or some combination of those features, involve a transfer of wealth from the producer to the consumer, and thus would not necessarily exist in a world without competition.

All of that may be relatively easy to say, but when it comes to the real world, matters quickly become more complex. The judge has no choice but to study the economic evidence that is presented by the parties and to come to a conclusion that is consistent with that evidence. This paper considers whether judges have been up to that task.

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

News Flash: European Commission Fines Intel Record $1.45 Billion (€1.06 Billion)

Posted by D. Daniel Sokol

This has been a difficult week for dominant firms.  First, Christine Varney announces that the DOJ will withdraw the Section 2 Report.  Today, the European Commission has fined Intel a record amount for abuse of dominance. Previously, Asian jurisdictions (Japan and Korea) have found against Intel.  Next up for Intel - a US trial against AMD.  The Wall Street Journal covers the story here, and the FT here.

As the Commission press release notes:

The Commission has found that Intel excluded its competitor in two ways:

  1. through illegal loyalty rebates
  2. by paying manufacturers and retailers to restrict the commercialisation of competitors' products.

These illegal actions were designed to preserve Intel's market share at a time when their only significant rival - AMD - was a growing threat to Intel's position. This threat was widely recognised by both computer manufacturers and in Intel's own internal documents seen by the Commission.

European jurisprudence has been more amenable to claims by rivals of exclusionary conduct than US jurisprudence.  Even with a more aggressive set of US antitrust enforcers, it is not clear to me that existing case law in the US will favor plaintiffs in exclusionary conduct cases.  It has been quite some time since a US Supreme Court antitrust decision has found in favor of plaintiffs. 

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

The Price/Non Price Exclusionary Abuses Dichotomy: A Critical Appraisal

Posted by D. Daniel Sokol

A_lianos Ioannis Lianos of University College London - Law discusses The Price/Non Price Exclusionary Abuses Dichotomy: A Critical Appraisal.

ABSTRACT: The recently published EU Commission guidance introduces a sharp dichotomy between price and non-price exclusionary conduct. For price-related conduct, only the exclusion of at least as equally efficient competitors as the dominant firm triggers antitrust intervention. The Commission recognizes that “in certain circumstances a less efficient competitor may also exert a constraint which should be taken into account when considering whether a particular price-based conduct leads to anticompetitive foreclosure”, but this possibility is given less weight than was previously the case in the 2005 DG Comp Staff Discussion paper. This brief study will discuss the emergence of the price/non price dichotomy and will critically assess its impact in EC competition law. It will first examine the validity of the assumption inherent in the introduction of the dichotomy, that is, that less efficient competitors are not “worthy” of competition law protection and that a filter should be introduced in order to limit accordingly the scope of Article 82 EC.

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

Tuesday, May 12, 2009

Varney Speaks

Another Look at Process: Is There Really a Difference between Merger Litigation at the Agencies?

Posted by D. Daniel Sokol

Kyle Andeer (FTC) asks, Another Look at Process: Is There Really a Difference between Merger Litigation at the Agencies?

ABSTRACT: The FTC has emphasized its unique role in antitrust enforcement and its administrative proceedings in these recent cases. Its position is grounded in the text of its authorizing statutes, Congressional intent, and longstanding legal precedent. Nevertheless, the FTC has been subjected to harsh criticism by some in the defense bar, arguing that the emphasis placed on the Commission’s administrative role and the D.C. Circuit’s decision in Whole Foods place the FTC in a stronger position to challenge mergers than the DOJ. That, in turn, leads to a higher hurdle for mergers at the FTC than it at the DOJ. Some urge the FTC to treat the preliminary injunction hearing in federal court as a de facto hearing on the merits.

This not only ignores the Congressional intent behind the FTC but it is not at all clear that expedited proceedings on the merits before lay judges is the best model to decide merger challenges.


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

Chicago, Post-Chicago, and Neo-Chicago

Posted by D. Daniel Sokol

Thumb_faculty_crane_danjpgDan Crane (Cardozo Law, soon to be Michigan Law) responds to Bob Pitofsky's How the Chicago School Overshot the Mark in a book review titled Chicago, Post-Chicago, and Neo-Chicago.

ABSTRACT:This essay reviews Bob Pitofsky's 2008 essay compilation, How Chicago Overshot the Mark: The Effect of Conservative Economic Analysis on U.S. Antitrust. The essay critically evaluates the book's rough handling of the Chicago School and suggests a path forward for a Neo-Chicago approach to antitrust analysis.

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