Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, November 14, 2009

Vertical Restraints to Competition in Retail Markets

Posted by D. Daniel Sokol

Nicolás Rojas Covarrubias, Facultad de Derecho - Universidad de Chile address Vertical Restraints to Competition in Retail Markets (Restricciones Verticales a la Competencia en el Ámbito del Retail) in a new book chapter.

ABSTRACT: This paper (only available in Spanish) summarises the relevant literature in the field of vertical restraints in connection with retail markets and distribution, and provides some insights from Chilean practice.

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

New Fronteirs of Antitrust

Posted by D. Daniel Sokol

Keynote speakers:
Christine VARNEY, Assistant Attorney General, Department of Justice, Washington
William E. KOVACIC, Commissioner, Federal Trade Commission, Washington

NEW FRONTIERS OF ANTITRUST
101 rue de l'Université, Paris Assemblée Nationale, Immeuble Chaban-Delmas, Salle Victor Hugo
15 February 2010

Logo IDC Concurrences e-Competitions



8.00 Registration & continental breakfast


8.30 Introductory remarks
  Frédéric JENNY | President, OECD Competition Committee
President of the International board of the Review Concurrences
Professor, Co-Director Centre Européen de Droit et d'Economie, ESSEC
8.45 Antitrust enforcement in the US and the EU: What next?
  Christine VARNEY |  Assistant Attorney General, Antitrust Division, DoJ, Washington
To be APPOINTED | EU Commissioner responsible for Competition
  Coffee break
10.15 Sector inquiries: Complements or substitutes for antitrust enforcement?
  Bruno LASSERRE | President, Autorité de la concurrence, Paris
Peter FREEMAN | Chairman, Competition Commission, London
Nadia CALVINO | Deputy Director General, DG COMP, Brussels
Nicolas PETIT | Lecturer, IEJE Co-Director, Liège University
Ian FORRESTER | QC, White & Case, Brussels
  Lunch
14.00 Behavioural economics: Questionning the fundations of antitrust?
  Frédéric JENNY | President, OECD Competition Committee, Paris
John FINGLETON | Chief executive, Office of Fair Trading, London
Alan FELS | Former Chairman, Competition and Consumer Protection, Canberra
Mark ARMSTRONG | Professor of economics, Director of ELSE, UCL, London
Jorge PADILLA | Vice-President, LECG, Madrid
  Coffee break
16.30 Sanctions: Is more always better?
  Laurence IDOT | Professor of law, University Panthéon-Assas, Paris
President of the Scientific board of the Review Concurrences
Bo VESTERDORF | Former President, Cour of First Instance of the EU
Wouter WILS | Legal service, European Commission - Visiting Professor, KCL, London
John M. CONNOR | Professor of economics, Purdue University, West Lafayette
Antoine WINCKLER | Partner, Cleary Gottlieb Steen & Hamilton, Brussels
18.45 Competition authorities: What is the scoreboard?
  William E. KOVACIC | Commissioner, Federal Trade Commission, Washington
  Drinks

Register here.

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

Friday, November 13, 2009

Review of Reverse-Payment Agreements: The Agencies, the Courts, Congress, and the European Commission

Posted by D. Daniel Sokol

William Rooney (Willkie Farr & Gallagher) & Elai Katz (Cahill) provide a Review of Reverse-Payment Agreements: The Agencies, the Courts, Congress, and the European Commission.

ABSTRACT: Two bills seeking to ban reverse-payment agreements are currently pending in Congress, and the European Commission has declared that such agreements, depending on the circumstances, may violate European competition laws. Meanwhile, several U.S. Courts of Appeals have upheld reverse-payment settlements as lawful if the restrictions in the settlement are within the scope of the patent.

This article provides an overview of the treatment of reverse-payment agreements by the agencies, the appellate courts, Congress, and the European Commission, without advocating a view on the legality of such agreements or the merits of court decisions, proposed legislation, or investigations relating to them.

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

Collusion Facilitating and Collusion Breaking Power of Simultaneous Ascending and Descending Price Auctions

Posted by D. Daniel Sokol

Alexander L. Brown, Texas A&M University - Department of Economics, Charles R. Plott, California Institute of Technology - Division of the Humanities and Social Sciences, and Heidi J. Sullivan, analyze Collusion Facilitating and Collusion Breaking Power of Simultaneous Ascending and Descending Price Auctions.

ABSTRACT: This article demonstrates that a robust tacit collusion evolves quickly in a “collusion incubator” environment but is destroyed by the simultaneous descending price auction. Theories of collusion-producing behavior, along with the detail of the states on which strategies are conditioned, lead to a deeper understanding of how tacit collusion evolves and its necessary conditions. These theories explain how the descending price auction destroys the collusion. The experiments proceed by conducting simultaneous ascending price auctions in the collusion incubator. Then, once the tacit collusion developed, changing to the descending auction. The change moved prices from collusive levels to near-competitive levels.

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

Online Distribution of Copyright Works: Google Books in a Broader European Context

Posted by D. Daniel Sokol

Isabel Davies, Alex Bowtell, Florian Dietrich, & Janine Seidel (CMS Cameron McKenna & CMS Hasche-Sigle) explain Online Distribution of Copyright Works: Google Books in a Broader European Context.

ABSTRACT: At first blush, the Google Books Settlement does not have effect in Europe. Google has stated that it does not currently plan to launch Google Books outside the United States. In addition, readers outside the United States will not benefit from the service even if Google does reach a settlement because the service will not be available outside the United States.

But what about the European (or for that reason any other non-U.S. national) authors who previously published copyright-protected but now out-of-print publications in the United States that Google now wishes to scan and make available to the public through the Google Books facility? Critics have suggested that Google Books will effectively create a de facto monopoly on digital access to a huge number of works, including those belonging to Europeans.

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

Thursday, November 12, 2009

Estimation and Identification of Merger Effects: An Application to Hospital Mergers

Posted by D. Daniel Sokol

New in the Journal of Law and Economics is Estimation and Identification of Merger Effects: An Application to Hospital Mergers by Leemore Dafny (Northwestern - Kellogg).

ABSTRACT: Existing empirical estimates of merger effects are compromised by the fact that merging and nonmerging entities differ in unobserved ways that independently affect outcomes of interest. To obtain an unbiased estimate of the effect of consummated mergers, I propose an approach that focuses on the response of rivals to mergers and accounts for the endogeneity of exposure to these mergers. I apply this approach to evaluate the impact of independent hospital mergers in the United States between 1989 and 1996. Using the physical colocation of rivals as an instrument for whether they merge, I find a sizeable, one‐time increase in price following a rival’s merger, with the greatest increase occurring among hospitals nearest the merging hospitals. These results are more consistent with predictions from structural models of the hospital industry than with prior observational estimates of the effects of hospital mergers.

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

The Rule of Reason: An Empirical Update for the 21st Century

Posted by D. Daniel Sokol

Michael Carrier (Rutgers-Camden, Law) has an important contribution on The Rule of Reason: An Empirical Update for the 21st Century.

ABSTRACT: One of the most amorphous rules in antitrust is the rule of reason. One of the most important rules in antitrust is the rule of reason. One of the most misunderstood rules in antitrust is the rule of reason. Put together these three propositions and you have the making of real trouble.

A decade ago, I showed that the rule of reason is far less amorphous than commonly believed. After reviewing all 495 rule of reason cases from 1977 to 1999, I showed that courts actually followed a burden-shifting approach.

This article updates my 1999 study. It concludes that the burden-shifting trend has continued and, in fact, has increased. Courts dispose of 97% of cases at the first stage, on the grounds that there is no anticompetitive effect. They balance in only 2% of cases.

Given the trend in the case law, the burden-shifting framework is an important observation. The rule of reason is even more crucial today than it was a decade ago. Because analysis is migrating away from per se analysis and towards the rule of reason, an exploration of what courts actually do in applying the framework may prove useful.

This short symposium article begins in Part I with an explanation of my methodology. Part II then presents the results. After providing an overview of the conclusions, it explores the instances of balancing in detail. Part III concludes by synthesizing the approaches of many of the appellate courts.

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

The Insurance Industry's Antitrust Immunity

Posted by D. Daniel Sokol

Herb Hovenkamp (Iowa- Law) explains The Insurance Industry's Antitrust Immunity.

ABSTRACT: The 1945 McCarran-Ferguson Act provides that federal legislation generally, including the antitrust laws, is “applicable to the business of insurance [only] to the extent that such business is not regulated by State law.” The statute was enacted after United States v. South Eastern Underwriters Assn. (1944), held that insurance transactions were “interstate commerce” and thus subject to the antitrust laws. That case had in turn undermined the traditional view expressed in Paul v. Virginia (1868), that insurance was not interstate commerce, but strictly local transactions. The South Eastern case followed in turn upon the Supreme Court's decision in Wickard v. Filburn (1942), which had greatly expanded the reach to relatively local activities of federal statutes passed under the Commerce Clause. Under the McCarran-Ferguson Act Congress thus relinquished its power to regulate to the states, provided that the states did at least a modicum of regulation themselves. The immunity applies equally to all federal statutes not intended to regulate the insurance industry, including the Federal Trade Commission (FTC) Act.

As a matter of history, the jurisdictional rationales for McCarran-Ferguson are obsolete. Today insurance is a national rather than statewide industry and numerous companies write insurance in nearly every state. Economically, however, the immunity may continue to serve a purpose. Most but not all portions of insurance industry are characterized by a large number of firms and low entry barriers. Further, the industry depends critically on shared information, including statistical loss data and common coverage, or standardized forms. As a result, many practices that might be misunderstood as collusive are in fact quite procompetitive. Further, as this paper demonstrates, the case law has tended to find the immunity in cases that involve true anticompetitive practices, and they have tended not to find it with respect to vertical relationships, product provision, or other areas where competition was not threatened.

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

Wednesday, November 11, 2009

Applying Litigation Economics to Patent Settlements: Why Reverse Payments Should be Per Se Illegal

Posted by D. Daniel Sokol

Josh Davis (University of San Francisco - Law) explains Applying Litigation Economics to Patent Settlements: Why Reverse Payments Should be Per Se Illegal.

ABSTRACT: One of the most pressing issues in antitrust law is how to assess settlements of patent disputes that involve payments from brand name to generic drug manufacturers. At stake are billions of dollars, both in inflated prices to consumers attempting to meet their medical needs and in exposure to liability for drug manufacturers. This Article applies the economics of dispute resolution to clarify the costs and benefits of various approaches to assessing patent settlements in the context of the Hatch-Waxman Act. It concludes that reverse payments should be banned under a per se rule, unless and until courts are presented with evidence that brand name drug manufacturers are at some sort of systematic disadvantage in their settlement negotiations with generic drug manufacturers, an unlikely possibility.

November 11, 2009 | Permalink | Comments (1) | TrackBack (0)

Obama's Antitrust Agenda

Posted by D. Daniel Sokol

Dan Crane (Michigan - Law) discusses Obama's Antitrust Agenda.

ABSTRACT: President Obama has vowed to reinvigorate U.S. antitrust enforcement, returning it to the “big is bad” legal philosophy of the early-20th century. That philosophy was displaced in mid-century by “Chicago school” legal theories that concluded that many business activities opposed by pre-Chicago law were actually good for consumers, incentivizing efficiency and lowering prices. In the past two decades, Chicago theories have been challenged by “post-Chicago” theories that, while accepting many of Chicago’s fundamental insights, assert that Chicago is overly permissive. Despite this clash between Chicago and post-Chicago thought in both academia and the judiciary, Obama’s antitrust goals are unlikely to succeed, as both Chicago and post-Chicago are highly skeptical of pre-Chicago views.

November 11, 2009 | Permalink | Comments (0) | TrackBack (0)

Competition in/by the Public Sector

Posted by D. Daniel Sokol

I am off tonight to Stockholm to present at what looks to be a very interesting conference on The Pros and Cons of Competition in/by the Public Sector that the Swedish Competition Authority has organized.  Given the growth in the state role in the economy in the past year, this is a particularly salient issue.

Blog posts will continue for the rest of the week as the blog is auto-posting at set times.

November 11, 2009 | Permalink | Comments (0) | TrackBack (0)

TransAtlantic Divide in Oracle/Sun Merger - A Difference of Culture?

Posted by D. Daniel Sokol

Surprisingly, it is the NY Times that brings up the cultural differences between the US and Europe.  Essentially, US antitrust enforcers believe in the market and Europeans do not.

After a conference in May in Greece, I asked on this blog where was the Chicago School in European competition law and economics among professors.  I am still waiting for a list of more than a handful of people.  Someone should write an article about this issue of divergence in academic thought across the Atlantic or better yet, hold a conference.

November 11, 2009 | Permalink | Comments (0) | TrackBack (0)

FTC and Department of Justice Sign Antitrust Memorandum of Understanding with Russia’s Federal Antimonopoly Service

Posted by D. Daniel Sokol

The press release is here.

November 11, 2009 | Permalink | Comments (0) | TrackBack (0)

The Effects of Leniency on Maximal Cartel Pricing

Posted by D. Daniel Sokol

Harold Houba, VU University Amsterdam - Department of Economics, Evguenia Motchenkova, VU University Amsterdam, and Quan Wen, Vanderbilt University - Department of Economics discuss The Effects of Leniency on Maximal Cartel Pricing.

ABSTRACT: We analyze maximal cartel prices in infinitely-repeated oligopoly models under leniency where fines are linked to illegal gains, as often outlined in existing antitrust regulation, and detection probabilities depend on the degree of collusion. We introduce cartel culture that describes how likely cartels persist after each conviction. Our analysis disentangles the effects of traditional antitrust regulation, leniency, and cartel strategies. Without rewards to the strictly-first reporter, leniency cannot reduce maximal cartel prices below those under traditional regulation. Moreover, in order to avoid adverse effects fine reductions should be moderate in case of multiple reporters. Our results extend the current literature and partially support existing leniency programs.

November 11, 2009 | Permalink | Comments (0) | TrackBack (0)

The Limits of Antitrust in the New Economy

Posted by D. Daniel Sokol

Geoffrey A. Manne, International Center for Law & Economics, Lewis & Clark Law School, LECG, LLC and Joshua D. Wright, George Mason University School of Law have a forthcoming article on The Limits of Antitrust in the New Economy.

ABSTRACT: This paper offers an opportunity to reflect on Frank Easterbrook’s seminal work on the Limits of Antitrust and to discuss its particular relevance to the problem of antitrust enforcement in the face of innovation. The error-cost framework in antitrust originates with Easterbrook’s analysis, itself built on twin premises: first, that false positives are more costly than false negatives because self-correction mechanisms mitigate the latter but not the former, and second, that errors of both types are inevitable because distinguishing pro-competitive conduct from anti-competitive conduct is an inherently difficult task in a single-firm context.

While economists have applied this framework fruitfully to several business practices that have attracted antitrust scrutiny, our goal in this paper is to harness the power of this framework to take an Easterbrookian, error-cost minimizing approach to antitrust intervention in markets where innovation is a critical part of the competitive landscape. While much has been said about the relationship between innovation and antitrust, often in the way of broad pronouncements that innovation either renders antitrust essential to economic growth or entirely unnecessary, the error-cost framework allows for greater precision in policy prescriptions and a more nuanced approach. Some of the implications are well understood in the current body of literature and others have been frequently ignored or remain entirely unrecognized.

Both product and business innovations involve novel practices, and such practices generally result in monopoly explanations from the economics profession followed by hostility from the courts (though sometimes in reverse order) and then a subsequent, more nuanced economic understanding of the business practice usually recognizing its pro-competitive virtues. This sequence and outcome is exactly what one might expect in a world where economists’ career incentives skew in favor of generating models that demonstrate inefficiencies and debunk the Chicago School status quo, while defendants engaged in business practices that have evolved over time through trial and error have a difficult time articulating a justification that fits one of a court’s checklist of acceptable answers. From an error-cost perspective, the critical point is that antitrust scrutiny of innovation and innovative business practices is likely to be biased in the direction of assigning higher likelihood that a given practice is anticompetitive than the subsequent literature and evidence will ultimately suggest is reasonable or accurate.

Given recent activities in the antitrust enforcement landscape - identifying innovating firms in high-tech markets as likely antitrust targets combined with recent discussions of error costs from leading enforcers, at the Section 2 Hearings and elsewhere - we hope to begin a more rigorous discussion of the relationships between innovation, antitrust error, and optimal liability rules that goes beyond merely selecting economic models that fit regulator’s prior beliefs.

We begin by discussing some principles for application of the error cost framework in the innovation context in Part II before discussing the historical relationship between antitrust error and innovation in Part III. Part IV concludes by challenging the conventional wisdom that the error cost approach implies that the rule of reason should apply to most forms of business conduct rather than per se rules. While we agree that per se rules should not apply to cases involving product or business innovation, broadly defined, we argue that the error cost approach should not require generalist judges to evaluate state of the art economic theory and evidence on a case by case basis. Instead, we favor an approach that is consistent with the spirit of Easterbrook’s original analysis, identifying simple filters aiming to harness the best existing economic knowledge to design simple rules that minimize error costs. We conclude with five such proposals for simple rules based on existing economic theory, empirical evidence, and acknowledgment of the institutional biases toward false positives discussed above.

November 11, 2009 | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 10, 2009

On Optimal Legal Standards for Competition Policy: A General Welfare-Based Analysis

Posted by D. Daniel Sokol

Yannis Katsoulacos, University of Athens - Econ and David Ulph, University College London - Econ address On Optimal Legal Standards for Competition Policy: A General Welfare-Based Analysis.

ABSTRACT: We present a new welfare-based framework for optimally choosing legal standards (decision rules). We formalise the decision-theoretic considerations widely discussed in the existing literature by capturing the quality of the underlying analysis and information available to a regulatory authority, and we obtain a precise necessary and sufficient set of conditions for determining when an Economics or Effects-Based approach would be able to discriminate effectively between benign and harmful actions and consequently dominate per se as a decision-making procedure. We then show that in a full welfare-based approach, the choice between legal standards must additionally take into account, (i) indirect (deterrence) effects of the choice of standard on the behaviour of all firms when deciding whether or not to adopt a particular practice; and (ii) procedural effects of certain features of the administrative process in particular delays in reaching decisions; and the investigation of only a fraction of the actions taking place. We therefore derive necessary and sufficient conditions for adopting Discriminating Rules, as advocated by the Effects-Based approach. We also examine what type of Discriminating rule will be optimal under different conditions that characterise different business practices. We apply our framework to two recent landmark decisions – Microsoft vs. EU Commission (2007) and Leegin vs. PSKS (2007) – in which a change in legal standards has been proposed, and show that it can powerfully clarify and enhance the arguments deployed in these cases.

November 10, 2009 | Permalink | Comments (0) | TrackBack (0)

Private Antitrust Enforcement in the Presence of Pre-Trial Bargaining

Posted by D. Daniel Sokol

Sylvain Bourjade, University of Toulouse - Econ, Patrick Rey, University of Toulouse -  Econ and
Paul Seabright, University of Toulouse - Econ have an interesting article on Private Antitrust Enforcement in the Presence of Pre-Trial Bargaining.

ABSTRACT: We study the effect of encouraging private actions for breaches of competition law. We develop a model of litigation and settlement with asymmetric information. We show that screening liable from non-liable defendants requires the Court to restrict the rules governing admissible evidence. We study how to design the rules so as to enhance the role of private litigation in antitrust enforcement and prove that increasing damages is better than reducing costs of initiating suits. We also find large benefits from introducing a system of compensation for defendants found non-liable, paid by unsuccessful plaintiffs.

November 10, 2009 | Permalink | Comments (0) | TrackBack (0)

An Antitrust Decalogue: The ten commandments of Australasian competition law

Posted by D. Daniel Sokol

Rex Ahdar (University of Otago - Faculty of Law) combines antitrust and religion in his article An Antitrust Decalogue: The ten commandments of Australasian competition law.

ABSTRACT: This article summarises the basic principles of Australian and New Zealand competition law in the form of 10 commandments. After stating the fundamental guiding concepts and principles of antitrust law in quasi-Biblical language, the meaning and scope of the commandments are amplified by commentary. The application of the Decalogue to current marketplace conduct is illustrated by hypothetical examples. The essay concludes that the ongoing vitality of the law depends upon an implicit faith in its efficacy as a prudent instrument of legal intervention — one that continues to serve Australian and New Zealand society well.

Download Decalogue.Ahdar.ABLR-1

November 10, 2009 | Permalink | Comments (0) | TrackBack (0)

Merger Performance and Efficiencies in Horizontal Merger Policy in the US and the EU

Posted by D. Daniel Sokol

Sjoerd P. Kamerbeek University of Utrecht - Faculty of Law addresses Merger Performance and Efficiencies in Horizontal Merger Policy in the US and the EU.

ABSTRACT: In current horizontal merger policy in the US and the EU an explicit efficiency defense is allowed. On both sides of the Atlantic mergers are unconditionally approved if internal efficiencies are sufficient to reverse the mergers’ potential to harm consumers in the relevant market. Current merger policy is implicitly based on the assumption that rational managers will only propose privately profitable mergers. In this thesis I will show that the empirical evidence on merger performance suggests that this assumption can’t be sustained. Managers do propose uneconomic mergers, motivated by non-wealth maximizing behavior. To tackle this problem I argue that efficiencies should not only be used as an efficiency defense, but efficiencies should work both ways. To avoid type I and type II errors the competition authorities in the US and the EU should undertake a sequential efficiency test in their assessment of specific mergers.

November 10, 2009 | Permalink | Comments (0) | TrackBack (0)

Monday, November 9, 2009

Department of Justice Antitrust Division Issues Statement on the European Commission's Decision Regarding the Proposed Transaction Between Oracle and Sun

Posted by D. Daniel Sokol

The DOJ has released a statement on the European Commission's Decision Regarding the Proposed Transaction Between Oracle and Sun.

This is as nice a statement as you could have over what seems to me to be a not insignificant difference of opinion.  Back to GE/Honeywell?

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