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 21, 2009

OECD Recommendation on Competition Assessment

Posted by D. Daniel Sokol

The OECD has published its Recommendation on Competition Assessment.

November 21, 2009 | Permalink | Comments (0) | TrackBack (0)

Friday, November 20, 2009

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 - Industrial Economic Institute explain 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 20, 2009 | Permalink | Comments (0) | TrackBack (0)

Monopolization via Voluntary Network Effects

Posted by D. Daniel Sokol

Adi Ayal, Bar-Ilan University - Faculty of Law analyzes Monopolization via Voluntary Network Effects.

ABSTRACT: Firms strategically investing in creating (or strengthening) network effects, are engaged in actively shifting market structure. From situations where standard competition may be possible, they shift the market towards monopoly, betting on their ability to win the 'competition for the market'.

In this paper I set out to explain the nature of such voluntary (as opposed to exogenously determined) network effects, and their antitrust implications.

A theoretical framework is presented, distinguishing between VNE based on technology and those stemming from pricing tactics alone. The market for video game consoles exemplifies technological VNE, while cellular calling plans allow for examining price-mediated VNE.

After examining in detail each of these markets and the antitrust implications of voluntary network effects of various types, a variety of additional real-world applications are presented where VNE are (or could easily be) used. Discussion of policy implications and hazards of excessively zealous regulation concludes.

November 20, 2009 | Permalink | Comments (0) | TrackBack (0)

Resale Price Maintenance in EC Competition Law: The Need for a Standardised Approach

Posted by D. Daniel Sokol

Frederik van Doorn, Utrecht University - School of Law explains Resale Price Maintenance in EC Competition Law: The Need for a Standardised Approach.

ABSTRACT: The paper addresses the paradox that, although it is generally recognised among economists that minimum and fixed resale price maintenance can have both positive and negative effects on consumer welfare, the current approach under EC competition law can still be characterised as a de facto per se prohibition. It is argued that excluding minimum and fixed resale price maintenance from the category of hardcore restrictions is undesirable, because this would substantially increase regulation costs. The current regime is moreover satisfactory because it leaves sufficient room to argue that a specific agreement entailing RPM should not be considered an infringement of competition law.

November 20, 2009 | Permalink | Comments (0) | TrackBack (0)

Thursday, November 19, 2009

Monopoly Pricing of an Antibiotic Subject to Bacterial Resistance

Posted by D. Daniel Sokol

Markus Herrmann (Department of Economics, CRÉA, GREEN and CIRPÉE, Université Laval) writes on Monopoly Pricing of an Antibiotic Subject to Bacterial Resistance.

ABSTRACT: We develop a dynamic bio-economic model of bacterial resistance and disease transmission in which we characterize the pricing policy of a monopolist who is protected by a patent. After expiration, the monopolist behaves competitively in a generic industry having open access to the common pool of antibiotic efficacy and infection. The monopolist manages endogenously the levels of antibiotic efficacy as well as the infected population, which represent quality and market size respectively and achieves, at least temporarily, higher such levels than a hypothetically myopic monopolist who does not take into account the dynamic externalities. The pricing policy and the biological system are characterized by the turnpike property. Before the patent vanishes, the monopolist behaves more and more myopically, leading to a continuous decrease in the price of the antibiotic. Once the generic industry takes over, a discontinuous fall ! in price occurs. Whether a prolongation of the patent is socially desirable depends on the relative levels of antibiotic efficacy and infection.

November 19, 2009 | Permalink | Comments (0) | TrackBack (0)

Staying, dropping, or switching : the impacts of bank mergers on small firms

Posted by D. Daniel Sokol

Hans Degryse (Tilburg University - Econ), Nancy Masschelein (National Bank of Belgium, Financial Department), and Janet Mitchell (National Bank of Belgium, Financial Department) address Staying, dropping, or switching : the impacts of bank mergers on small firms.

ABSTRACT: Assessing the impacts of bank mergers on small firms requires separating borrowers with single versus multiple banking relationships and distinguishing the three alternatives of "staying," "dropping," and "switching" of relationship. Single-relationship borrowers who "switch" to another bank following a merger will be less harmed than those whose relationship is "dropped" and not replaced. Using Belgian data, we find that single-relationship borrowers of target banks are more likely than other borrowers to be dropped. We track post-merger performance and show that many dropped target-bank borrowers are harmed by the merger. Multiple-relationship borrowers are less harmed, as they can better hedge against relationship discontinuations.

November 19, 2009 | Permalink | Comments (0) | TrackBack (0)

Competition between TV Platforms

Posted by D. Daniel Sokol

Laia Domènech Campmajó (PPRE-IREA, University of Barcelona, Econ) writes on Competition between TV Platforms.

ABSTRACT: The aim of this paper is to identify the factors that affect the market penetration of pay television by studying the competition that exists between three types of technology (satellite, cable and ADSL). We distinguish three groups of factors: the level of market competition, the level of competition in the industry and the quality of the product being offered. Our results seem to indicate that as market concentration increases, the television service can achieve greater penetration. This relationship is specifically captured by the level of intra- and inter-platform competition. We also examine the relationship between free television channels and pay television and find that as the amount of time dedicated to the broadcasting of advertising by the former increases, the number of subscribers to pay TV rises. Finally, we examine product quality by introducing the effect of holding the rights to broadcast Professional Football League matches and an HBO or Showtime produced series. Our results suggest that these variables are critical for the penetration of pay television.

November 19, 2009 | Permalink | Comments (0) | TrackBack (0)

A Dynamic Game of Airline Network Competition: Hub-and-Spoke Networks and Entry Deterrence

Posted by D. Daniel Sokol

Victor Aguirregabiria (Toronto - Econ) and Chun-Yu Ho (Georgia Tech - Econ) address A Dynamic Game of Airline Network Competition: Hub-and-Spoke Networks and Entry Deterrence.

ABSTRACT: In a hub-and-spoke network, the total profit function of an airline is supermodular with respect to its entry decisions at different city-pairs. This source of complementarity implies that a hub-and-spoke network can be an effective strategy to deter entry of competitors. This paper presents a dynamic game of airlines network competition that incorporates this entry deterrence motive for using hub-and-spoke networks. We summarize the results of the estimation of the model, with particular attention to empirical evidence on the entry deterrence motive.

November 19, 2009 | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 18, 2009

'We are here in a very melancholy Situation': Financial crisis and competition policy

Posted by D. Daniel Sokol

Peter Freeman (Competition Commission) spoke to the David Hume Institute on 'We are here in a very melancholy Situation': Financial crisis and competition policy.

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

A Question for Our Readers

Posted by D. Daniel Sokol

We read a Winnie the Pooh story to our girls tonight before bed.  I have often wondered why Winnie the Pooh lives in the house of Mr. Sanders (because it says the name Mr. Sanders above the door).  Can someone explain this to me?  Is this like Thomas Magnum living in the Robin Masters mansion in Hawaii in Magnum, PI?

Update 1

A DOJ antitrust attorney who wishes to remain anonymous provides two web sites with potential answers:

http://www.lavasurfer.com/pooh-faq2.html

http://www.just-pooh.com/pooh.html

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

Cartelizing Groups in Dynamic Linear Oligopoly with Antitrust Threshold

Posted by D. Daniel Sokol

Akio Matsumoto, Chuo University, Ugo Merlone, University of Turin - Department of Statistics and Applied Mathematics, and Ferenc Szidarovszky, University of Arizona - Department of Systems & Industrial Engineering analyze Cartelizing Groups in Dynamic Linear Oligopoly with Antitrust Threshold.

ABSTRACT: The effects of partially cooperating firms are examined in N-firm oligopolies. The Herfindahl-Hirschmann Index is assumed to detect the violation of the antitrust regulation by the firms, and based on this assumption a piece-wise differentiable dynamic system can be developed. The firms stop cooperating if this index becomes larger than a certain threshold and they restart or continue cooperating otherwise. The equilibria of the dynamic system are first determined. Local and global asymptotic stability of the equilibria are then investigated showing the complexity of the dynamic behavior of the system.

November 18, 2009 | Permalink | Comments (1) | TrackBack (0)

Deterrence in Competition Law

Posted by D. Daniel Sokol

Paolo Buccirossi (LEAR), Lorenzo Ciari (Lear and EUI), Tomaso Duso (Humboldt University Berlin and WZB), Giancarlo Spagnolo (University of Rome Tor Vergata), and Cristiana Vitale (LEAR) focus on Deterrence in Competition Law.

ABSTRACT: This paper provides a comprehensive discussion of the deterrence properties of a competition policy regime. On the basis of the economic theory of law enforcement we identify several factors that are likely to affect its degree of deterrence: 1) sanctions and damages; 2) financial and human resources; 3) powers during the investigation; 4) quality of the law; 5) independence and 6) separation of power. We then discuss how to measure deterrence. We review the literature that uses surveys to solicit direct information on changes in the behavior of firms due to the threats posed by the enforcement of antitrust rules, and the literature based on the analysis of hard data. We finally argue that the most challenging task, both theoretically and empirically, is how to distinguish between “good” deterrence and “bad” deterrence.

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

Whistling Past the Graveyard: The Problem with the Per Se Legality Treatment of Pay-For-Delay Settlements

Posted by D. Daniel Sokol

Michael Kades (Federal Trade Commission) explains Whistling Past the Graveyard: The Problem with the Per Se Legality Treatment of Pay-For-Delay Settlements.

ABSTRACT: Arguably, the most important debate in antitrust jurisprudence involves pay-for-delay patent settlements in which the brand company pays the generic to stay out of the market. As a matter of economics, it will generally be most profitable if the brand and the generic firm avoid the possibility of competition and share the resulting monopoly profits; however, such settlements will reduce competition and increase the costs of drugs. If pay-for-delay settlements are legal, parties will enter them to the detriment of consumers.

Current cases, in particular the Tamoxifen and Ciprofloxacin decisions, however, have gone a long way towards adopting just such a standard, a standard that is already having an effect. By adopting an approach without regard to its implications or erroneously suggesting that pay for delay settlements are an ineffective way to delay competition, courts are essentially whistling past the graveyard.

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

Welcome CCP Competition Policy Blog

Posted by D. Daniel Sokol

The University of East Anglia's Centre for Competition Policy (note the British spelling of Center for those of you who are US readers -- this means that the Centre for Competition Policy is that much better because they have cool spellings and accents) has just launched a new website CCP Competition Policy Blog.  The blog editors are Bruce Lyons and Andreas Stephans.

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

The Approach to State Aid in the Restructuring of the Financial Sector

Posted by D. Daniel Sokol

Lorenzo Coppi & Jenny Haydock, (both CRA International) describe The Approach to State Aid in the Restructuring of the Financial Sector.

ABSTRACT: The unprecedented nature of the financial crisis in autumn 2008 led the European Commission to approve a series of state support measures for the financial sector under Article 87(3)(b), which allows for aid to be considered compatible with the common market if it is “to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State.” There was a consensus that the very serious financial crisis constituted a “serious disturbance” to the European economy.

There are minimal precedents on the use of Article 87(3)(b), and therefore the Commission has advanced a framework for the analysis, especially in its communication, The Return to Viability and the Assessment of Restructuring Measures in the Financial Sector in the Current Crisis under the State Aid Rules. This paper discusses that communication and the appropriate framework for analyzing aid to the financial sector given under Article 87(3)(b).

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

Tuesday, November 17, 2009

Horizontal Merger Guidelines Review Project - First Set of Comments Posted

Posted by D. Daniel Sokol

See here.  Some comments are really good.  I wish I knew who really paid for them. 

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

Parental Liability for Cartel Infringements

Posted by D. Daniel Sokol

James Bourke (European Commission) explains Parental Liability for Cartel Infringements.

ABSTRACT: The imputation of liability to a parent company for its subsidiary's participation in a cartel forms part of a field of law which has been ploughed almost exclusively by the Community Courts. Ultimately, imputation is permissible where the parent and subsidiary form part of a single economic entity (an "undertaking") such that the subsidiary lacks autonomy with respect to commercial policy. However, the wording of the test originally set out by the European Court of Justice (“ECJ”) more than thirty years ago is somewhat ambiguous and appears, at first blush, to impose a very onerous burden on the Commission. The jurisprudence from more recent years shows that the exact wording of the legal test should not be taken too literally. Rather it is necessary to make a global assessment of the influence which the parent has over its subsidiary in deciding whether they are part of a single economic entity.

In September 2009, the Luxembourg courts provided further guidance on parental liability. The most important of these judgments is the ECJ's ruling in the Akzo Nobel (Choline Chloride) appeal which marks the end of one wave of litigation with respect to the application and strength of the presumption of actual exercise of decisive influence in the case of 100 percent shareholdings. However, that judgment is also significant because it confirms that the Commission should look to all relevant economic, organizational and legal links which tie the subsidiary to the parent in order to assess whether they are part of one undertaking.

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

Merger Review of Firms in Financial Distress

Posted by D. Daniel Sokol

Ken Heyer (DOJ) & Sheldon Kimmel (DOJ) examine Merger Review of Firms in Financial Distress.

ABSTRACT: In recessions, we expect to see an increase in both the number and share of mergers where at least one of the parties is having difficulty independently staying afloat. This raises the importance of adopting a sound framework for analyzing merging firms in some form of financial distress.

This paper concludes that, while it can be hard to evaluate a failing firm defense under the Merger Guidelines, the principles underlying the test are generally sound, even when the overall economy is going through very difficult times. The recent severe downturn may lead to more proposed mergers between financially distressed firms, but it does not imply that looser standards ought to be applied when evaluating them

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

Reversing the Trend? The Possibility that Rule Changes May Lead to Fewer Reverse Payments in Pharma Settlements

Posted by D. Daniel Sokol

Anne Layne-Farrar (LECG) suggests that Reversing the Trend? The Possibility that Rule Changes May Lead to Fewer Reverse Payments in Pharma Settlements.

ABSTRACT: This article begins by laying out a simple framework that makes obvious the incentives at play in generic drug entry, brand challenges, and settlements between the two. Once this common understanding has been established, several rule changes that have taken place are summarized—one in the form of an amendment to Hatch-Waxman and another in a recent decision by the Court of Appeals for the Federal Circuit. These institutional changes may have the consequence of reducing the prevalence of reverse payments.

This possibility suggests a different policy tact might be called for, one that shifts emphasis from determining whether or not reverse payments should be per se illegal to working with the incentives that firms already face and exploiting those incentives to reduce firms’ inclinations to enter into anticompetitive reverse-payment settlements.

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

Brill and Ramirez Nominated for FTC Commissioner positions

Posted by D. Daniel Sokol

Reuters has the story here.  Both names have been floated for quite some time so neither comes as a surprise.  Both are consumer protection people (the first since Muris).  I do not have a sense on how both would vote on antitrust issues.

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