Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, July 18, 2009

Getting the Balance Right: Intellectual Property, Competition Law and Economics in Asia

Posted by D. Daniel Sokol

The National University of Singapore has a great looking conference in the works for September 7, 2009 - Getting the Balance Right: Intellectual Property, Competition Law and Economics in Asia.

This one-day Symposium brings together lawyers and economists interested in the intersection between intellectual property laws and competition laws. The prime focus is on how best to balance these laws to improve, in a practical way, economic welfare in Asia. After two Keynote presentations by Bill Kovacic and David Teece dealing with the regulation and the underlying economics of intellectual property and competition laws, an economist and lawyer will present papers on selected countries in Asia. The dinner speech will be given by Judge Douglas Ginsberg of the USA.

SPEAKERS
TEO ENG CHEONG,
Competition Commission of Singapore
BILL KOVACIC,
US Federal Trade Commission
DAVID TEECE,
University of California, Berkeley
MICHAEL JACOBS,
De Paul University
ZHANG XINZHU,
Chinese Academy of Social Sciences
STEVE HARRIS,
Jones Day
HIROSHI OHASHI,
University of Tokyo
SANG-SEUNG YI,
Seoul National University
SEONG-WOOK HEO,
Seoul National University
BOB BAXT,
Freehills
HENRY ERGAS,
Concept Economics
VINOD DHALL,
Former Chairman, Competition Commission of India
SHUBHASHIS GANGOPADHYAY,
India Development Foundation
NINGRUM SIRAIT,
University of Sumatera Utara, Medan
IAN MCEWIN,
National University of Singapore
ASHISH LALL,
Lee Kuan Yew School of Public Policy,
National University of Singapore
DARYL LIM,
Stanford Law School
SAKDA THANITCUL,
Chulalongkorn University
DAMIEN GERADIN,
Tilberg Law and Economics Center
PROGRAMME
JUDGE DOUGLAS GINSBURG, USA
“The Role of Economic Analysis in a Rule of Law Regime, With Special Reference to Competition Law”

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

Friday, July 17, 2009

Privatization, Regulation and Airport Pricing: An Empirical Analysis for Europe

Posted  by D. Daniel Sokol

Xavier Fageda (U. Barcelona - Economics) & Germa Bel (U. Barcelona - Economics) Privatization, Regulation and Airport Pricing: An Empirical Analysis for Europe.

ABSTRACT: This paper examines factors determining prices that airports charge to airlines. Using data for 100 large airports in Europe, we find that they charge higher prices when they move more passengers. Additionally, competition from other transport modes and other nearby airports imposes some discipline on the pricing behavior of airports. Low-cost carriers and airlines with a high market share seem to have a stronger countervailing power. Finally, we find that private airports not regulated charge higher prices than public or regulated airports. From our analysis, we can infer that market power of each airport is dependent upon its specific characteristics.

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

Confronting the Threats to Market Competition

Posted by D. Daniel Sokol

The Organization for Competitive Markets (OCM) will hold its annual conference on August 7 and 8 in St. Louis, Mo., at the Westin St. Louis Hotel. American Antitrust Institute (AAI) President Bert Foer will deliver the luncheon address.  AAI Director and Vice President Diana Moss will speak on a panel discussion competition issues in the transgenic seed industry.
 
Conference attendees include J. Dudley Butler, Administrator of the USDA Grain Inspection and Packers and Stockyards Administration; Philip J. Weiser, Deputy Assistant General for Antitrust; and Quindi Franco, Senior Analyst with the U. S. Government Accountability Office.  David Domina, founding OCM member and Lead Trail Counsel for the Plaintiffs in Picket v. Tyson Foods, will deliver the keynote address. Program presenters and panelists include Bill Freese, Center for Food Safety; Bill Heffernan, University of Missouri; Mary Hendrickson, University of Missouri; Robert Taylor, Auburn University; Peter Carstensen, University of Wisconsin; Kile Steigert, University of Wisconsin; Gregory Gundlach, University of North Florida; and Bart Chilton, Commissioner with the U. S. Commodity Futures Trading Commission. 
 
A single fee of $50 includes registration, luncheon and banquet.  Registration forms are available for download
here.

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

Thursday, July 16, 2009

Competition and Innovation: Evidence from Financial Services

Posted by D. Daniel Sokol

Jaap W.B. Bos (Utrecht - Economics), Ryan C.R. van Lamoen (Utrecht - Economics), and James W. Kolari (Texas A&M - Mays School of Business) have an interesting new paper on Competition and Innovation: Evidence from Financial Services.

ABSTRACT: In this paper we seek to contribute to the literature on competition and innovation by focusing on individual firms within the U.S. banking industry in the period 1984-2004. We measure innovation by estimating technology gaps and find evidence of an inverted-U relationship between competition and the technology gaps in banking. This finding is robust over several different specifications and is consistent with theoretical and empirical work by Aghion, Bloom, Blundell, Griffith, and Howitt (2005b). The optimal amount of innovation requires a slightly positive mark up. Also, we find that the U.S. banking industry as a whole has consolidated beyond this optimal innovation level and that state-level interstate banking deregulation has lowered innovation.

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

Exclusionary Bundling: The Motive for Mergers

Posted by D. Daniel Sokol

Sue Mialon (Emory - Econ) writes on Exclusionary Bundling: The Motive for Mergers.

ABSTRACT: This paper models how exclusionary bundling motivates mergers. Firms in two unrelated markets may want to merge only to bundle, even though bundling is possible without a merger. This is because merger is necessary in order to use bundling for an exclusionary purpose. Independently of a merger, firms can always improve their profits from pure bundling. In contrast, a merger is never profitable if not combined with bundling. Moreover, it is more profitable to bundle through strategic alliance than through merger in the short run. Thus, firms choose to merge only if the merger can lead to foreclosure. Although the merger results in losses to a rival in only one of the two markets, foreclosure occurs in both markets, since the other rival firm alone cannot compete against a bundle. In this framework, all mergers are ex ante anti-competitive. Blocking a merger is never welfare-reducing.

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

Bilateral oligopoly and quantity competition

Posted by D. Daniel Sokol

Alex Dickson (Economics, University of Strathclyde) and Roger Hartley (Economics, University of Manchester) describe Bilateral oligopoly and quantity competition.

ABSTRACT: Bilateral oligopoly is a strategic market game with two commodi- ties, allowing strategic behavior on both sides of the market. When the number of buyers is large, such a game approximates a game of quantity competition played by sellers. We present examples which show that this is not typically a Cournot game. Rather, we introduce an alternative game of quantity competition (the market share game), which yields the same equilibria as the many-buyer limit of bilateral oligopoly, under standard assumptions on costs and preferences. We also show that the market share and Cournot games have the same equilibria if and only if the price elasticity of the latter is one. These results lead to necessary and sufficient conditions for the Cournot game to be a good approximation to bilateral oligopoly with many buyers and to an ordering of total output when they are not satisfied.

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

In Search of the Marginal Consumer

Posted by D. Daniel Sokol

Phil Evans of FIRPA is In Search of the Marginal Consumer.

ABSTRACT: In the long term, consumer welfare is about efficiency and innovation. In the short term, consumer welfare is about price, choice and access and the interrelationship between all three. For competition policy, consumer welfare therefore acts as a bridge to the greater good – namely well functioning markets – it strives to achieve.

Why did FIPRA undertake this Study? Quite simply because in our daily public affairs work, we have learned – some would say ‘the hard way’ – to consider the consumer at the beginning and at the end of the public policy outcomes and objectives that our clients ask us to help them achieve. This strategic view is therefore central to our business as it is relevant in all fields of policy, but perhaps never more so than in competition policy. As a result, we urge those looking at countless ‘cases’ to bring consumer welfare, now more broadly conceived, into its proper place in research: at the start of investigations during the market definition stage and at the end of cases in the assessment of remedies. In the following pages, we will argue that consumer behaviour needs to be built into agencies and analysis much more effectively than it is today. If competition policy continues to retreat onto an island policy fortress it is only a question of time before it loses relevance and credibility in the eyes of the consumer it claims to be protecting. In many of the cases emerging at the time of writing, the need for competition authorities to be more willing – and able – to take on vested political and departmental interests that seek to undermine competition regulation through slow or inappropriate action is nothing less than palpable. The time to act is now – and with some degree of urgency.

Consumers’ organisations too need to engage more in competition policy. Recalcitrant organisations should be spurred into action by competition authorities. Once they have proved skill and interest, consumers’ organisations should be given standing in competition cases and interventions as a matter of routine.

Much is made by commentators of the EU/US divergences of policy. One way – and perhaps the only way – to allow the different traditions at the root of those divergences to meet and to understand each other is by focussing on a more nuanced behavioural approach to consumer welfare. We need to make a concerted effort to bring efficiency and innovation criteria more firmly into the assessment of long-term consumer welfare.

It is time to return to the sort of language used to promote the first wave of competition law in the US, which used terms like ‘economic democracy’ and ‘empowering the little guy’. Such diction can place competition policy more firmly in a progressive set of policies designed to manage globalisation.

July 16, 2009 | Permalink | Comments (1) | TrackBack (0)

Wednesday, July 15, 2009

Road Testing of Consumer Remedies

Posted by D. Daniel Sokol

The CC and OFT commissioned a joint study on Road Testing of Consumer Remedies.

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

Predatory Exclusive Dealing

Posted by D. Daniel Sokol

Joachim Klein (Munich Graduate School of Economics, University of Munich) and Hans Zenger (European Commission, Chief Economist Team, Directorate-General for Competition) write on Predatory Exclusive Dealing.

ABSTRACT: While the previous literature on exclusive dealing has been concerned with the question of how exclusive dealing can raise static profits, this paper analyzes the question of how exclusive dealing can be used to predate in a dynamic context. It is shown that exclusive dealing may arise even if it reduces static profits. Exclusivity provisions may not only allow excluding efficient competitors, but indeed are often a cheaper exclusionary tool than predatory pricing. This is the case if the prey's access to finance is not too limited. Furthermore, it is more likely that exclusive dealing is preferable compared to predatory pricing the more market power the predator has with respect to the prey.

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

Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment

Posted by D. Daniel Sokol

Lisa R. Anderson (Department of Economics, College of William and Mary), Beth A. Freeborn (Department of Economics, College of William and Mary), and Jason P. Hulbert (Department of Economics, College of William and Mary) explain Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment.

ABSTRACT: We investigate the relationship between collusive behavior in Bertrand oligopoly experiments and subject heterogeneity in risk preferences. We find that risk aversion is positively associated with tacit collusion when the goods are complements, but find no evidence of collusive behavior when the goods are substitutes. Furthermore, risk aversion is associated with lower prices with complement goods, but does not impact pricing behavior with substitute goods. In both treatments, we find that subjects tend to follow the price change of the other seller. In the complements treatment, however, this tendency increases with the degree of risk aversion.

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

Tuesday, July 14, 2009

Antitrust in an Era of Market Failure

posted by Shubha Ghosh

Readers might be interested in Alan Devlin's article Antitrust in an Era of Market Failure, soon to be appearing in the Harvard Journal of Law & Public Policy,  available at http://ssrn.com/author=1271852

Abstract follows:

  This is an unsettling time for those who support rigorous economic analysis in antitrust cases.  Over the past four decades, numerous assumptions underlying the operation of free markets had developed to the point of being virtually unassailable.  Rational profit-maximizing behavior on the part of many leads to optimal, self-sustaining equilibria.  Markets self-correct, such that many (indeed most) distortions will be ephemeral.  In cases of uncertainty, enforcers should err on the side of false negatives.  Financial markets are efficient, which means that even large-scale entry in capital-intensive markets can safely be presumed where supracompetitive prices await.  In short, the free market works.  Certain of these assumptions now lie in ruins.  For the antitrust proponent who has developed his thinking based on such principles, the global market meltdown poses an unprecedented predicament. 

                Yet, when all the dust has settled, it is not clear what the objective lessons of the crisis will be for competition policy.  The global recession certainly teaches that assumptions of efficiency are misplaced where systemic uncertainty pervades the marketplace.  It questions the wisdom of a financial system that becomes concentrated to a point where the failure of one key player portends the catastrophic collapse of others.  It reveals that macroeconomic fluctuations cannot be controlled by monetary policy alone.  It begs fundamental questions about the role of regulation, not just in terms of scope, but in efficacy and global reach too.  But, for all this, it does not say much about antitrust analysis.

                This point has been missed, and missed badly.  Competition enforcers, politicians, and commentators are falling prey to an alluring, yet simplistic and myopic view.  They posit that the economic dogma that ushered today’s extraordinary global recession is inextricably linked to the tenets of price theory that inform antitrust doctrine.  They are mistaken.

This Article explores the normative repercussions of the global recession for competition policy, and explains that minimal readjustment is counseled under the rubric of economics.  Nevertheless, past shifts in substantive policy have coincided with larger changes in political thinking.  The crisis has undermined U.S. faith in the free market, which portends a dramatic deviation from the law’s cautious approach to conduct of indeterminate long-run competitive effect.  Such a shift is difficult to justify, but is surely inevitable.

 

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

Worldwide Merger Notification Requirements

Posted by D. Daniel Sokol

J. Mark Gidley (White & Case), George L. Paul (White & Case) have produced the very accessible and informative Worldwide Merger Notification Requirements.

BOOK ABSTRACT: Although international mergers continue to become more common, merger control regimes are wildly diverse, and there is no procedurally harmonized international system of merger notification. Instead, any one of the plethora of inconsistent regulations can hold up your transaction. The current edition of Worldwide Merger Notification Requirements evaluates the merger notification requirements of over 215 jurisdictions.

In this book, the leading authorities at White &Case provide a complete roadmap for parties contemplating a multinational transaction by highlighting the disparate ways in which competition authorities treat mergers, including differences in notification timing; filing fees; turnover, size, and post-merger market share thresholds; potential penalties; volume and type of required filing information; and the multitude of standards and definitions that pervade every multinational transaction. This is an easy way for you to avoid time-consuming and costly bureaucratic obstacles!

Wherever you may be advising on a merger, Worldwide Merger Notification Requirements will let you immediately determine:

  • Where do I have to seek regulatory approval?
  • When am I required to request approval: pre-merger, post-merger or is notification voluntary?
  • Which countries do not require regulatory approval?
  • How long does the approval process take?
  • What key substantive issues will the agency examine?
  • How much will it cost?
  • And more!

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

The Court of Justice and Unlimited Jurisdiction: What Does it Mean in Practice?

Posted by D. Daniel Sokol

Bo Vesterdorf (Herbert Smith and Plesner) asks The Court of Justice and Unlimited Jurisdiction: What Does it Mean in Practice?

ABSTRACT: The principal function of the Community Courts, the Court of Justice (“ECJ”) and the Court of First Instance (“CFI”) is to ensure that in the interpretation and application of the Treaty (and secondary EC law) the law is observed (Article 220EC). The primary role of the Community Courts in this respect, including in the competition field, is judicial review of the legality of acts of the Community institutions (Article 230) which can result in a confirmation, or total or partial annulment of the challenged act in question. In this respect, the Courts therefore act as judicial review courts and not as courts of full appellate jurisdiction with the power to adopt decisions on the merits of the case themselves.

There is one area, however, where the Community Courts do enjoy full jurisdiction. Article 229EC provides that the Community Courts may, by Regulation, be given unlimited jurisdiction as regards sanctions decided under the Regulation in question. In the competition field, with regard to fines imposed by the Commission as sanctions for infringement of the competition rules, this has been done by Art. 31 of Regulation 1/2003. According to Article 31 the unlimited jurisdiction empowers the Community Courts to annul, reduce, or increase the fine in question. It is important to note that under Article 31 it is not a condition for the exercise of those powers that the Court has found errors as to the substance or merits of the case nor as regards the way in which, or the level at which, the Commission has set the fine.

To what extent, then, is this unlimited jurisdiction exercised by the ECJ or the CFI in practice?


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

Cartels, Fines, and Due Process

Posted by D. Daniel Sokol

Philip Lowe (European Commission) explains Cartels, Fines, and Due Process.

ABSTRACT: The level of fines imposed by the Commission with respect to cartel infringements has increased considerably over the past decade. In recent years, the Commission has imposed a number of record fines for cartel infringements, including fines amounting to a total of EUR 1.384 billion on four companies in the Car glass cartel in 2008 and fines amounting to EUR 992 million imposed on four companies in the Elevators cartel in 2007. These fines are high, certainly. But I do not believe that they are too high.

Some commentators from the legal and business communities argue that these fines are disproportionate. They question whether the current Commission procedures continue to be in compliance with principles of due process and whether criminal penalties for the individuals concerned would not be more appropriate than levying high fines on companies. I consider that the Commission’s current enforcement system based on deterrent administrative fines has been a tremendous success. It has managed to put an end to the view, long prevalent in Europe, that antitrust infringements are trivial.

Companies are finally taking antitrust violations in Europe seriously.

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

The Effect of Entry on R&D Investment of Leaders: Theory and Empirical Evidence

Posted by D. Daniel Sokol

Dirk Czarnitzki (K.U.Leuven, Dept. of Managerial Economics, Strategy and Innovation), Federico Etro (University of Milan, Bicocca, Dept. of Economics) and Kornelius Kraft (Technical University of Dortmund, Dept. of Economics) analyze The Effect of Entry on R&D Investment of Leaders: Theory and Empirical Evidence.

ABSTRACT: We develop a simple model of competition for the market that shows that, contrary to the Arrow view, endogenous entry threat in a market induces the average firm to invest less in R&D and the incumbent leader to invest more than the average firm. We test these predictions with a Tobit model based on a unique dataset and survey for the German manufacturing sector (the Mannheim Innovation Panel). In line with our predictions, endogenous entry threats perceived by the firms reduce R&D intensity for the average firm, but not for an incumbent leader. Moreover, the size of the firms and their patent stocks, proxy for the protection of IPRs, are positively related to R&D intensity. These results hold after a number of robustness tests with instrumental variables.

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

Monday, July 13, 2009

The Price of Abuse: Intel and the European Commission Decision

Posted by D. Daniel Sokol

Bob Lande (Baltimore Law) analyzes The Price of Abuse: Intel and the European Commission Decision.

ABSTRACT: The May 13, 2009 decision by the European Commission (“EC”) holding that Intel violated Article 82 of the Treaty of Rome and should be fined a record amount and prohibited from engaging in certain conduct, set off a predictable four part chorus of denunciations:
1.    Intel did nothing wrong and was just competing hard;
2.    Intel’s discounts were good for consumers;
3.    The entire matter is just another example of Europeans protecting their own against a more efficient U. S. company; and
4.    Even if Intel did engage in anticompetitive activity, the fine was much too large.

These assertions will be addressed in turn.

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

Private Law and Competition Policy in the Global Economy

Posted by D. Daniel Sokol

Gralf-Peter Calliess, University of Bremen - Faculty of Law and Jens Mertens, CRC "Transformations of the State"  explore Private Law and Competition Policy in the Global Economy.

ABSTRACT: In this paper we criticize the so-called 'more economic approach' to European competition law for its disregard of the importance of a functional system of private law. The more economic approach presumes that vertical integration is an economically efficient governance-mechanism. This assumption is based on the availability of market governance as an alternative mode of governance for organizing transactions. Since the enforcement of cross-border contracts by state-organized systems of private law, however, is insufficient, 'make or buy'-decisions in international commerce are prejudiced against at arms' length transactions on markets. Consequently international transactions are integrated vertically into firm-structures to a higher degree than it is economically sensible for comparable domestic transactions, which take place in the shadow of an effective domestic system of private law. The resulting over-integration of world markets leads to reduced competitive incentives and high bureaucratic costs. Contrary to the fundamental assumptions of the "more economic approach", vertical integration does, therefore, not per se foster consumer welfare in the global economy. Being an economically inefficient reaction to the deficits in state protection of cross-border contracts, this excess of cross-border vertical integration, however, cannot be countered by a strict world antitrust law, but only by establishing legal certainty in the enforcement of cross-border contracts. Thus, international private law policy currently seems to be the instrument of choice in promoting competition in the global economy.

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

Governments as Cartel Victims

Posted by D. Daniel Sokol

Jconnor John Connor of Purdue University's Applied Economics Department explains Governments as Cartel Victims.

ABSTRACT: In this note, I assemble simple empirical evidence on the severity of monetary penalties on modern international cartels, focusing on whether there are systematic differences in severity between cases in which the government itself is the victim of overcharging versus cases where the brunt of the economic injuries are borne by businesses and consumers. I find that government-sector fines are significantly higher relative to affected sales when government bid rigging is the principal form of cartel conduct. This pattern is found across nearly all jurisdictions. These findings call into question whether enforcement resources are tilted unwisely towards cases where the government is the victim.

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

Sunday, July 12, 2009

Congrats to Scott Hemphill

Posted by D. Daniel Sokol

Scott Hemphill (Columbia Law), who has done some very interesting empirical work into pharmaceutical patent settlements was in the NY Times today, though not for his scholarship.  Hemphill was in the Wedding announcements section.  May Scott and his wife have a long and wonderful marriage. 

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