Antitrust & Competition Policy Blog

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

Saturday, December 26, 2009

European State Aids Control

Posted by D. Daniel Sokol


UCL CPD: Competition Law Courses 2009-10 Logo


UCL is pleased to announce a new course starting in January:

  • European State Aids Control
     7 weeks from January 2010, £600

The course, which runs for 2 hours each week, covers the following areas:

  • State aids control I: the fundamentals
    Wednesday 20 January - 6-8pm
  • State aids control II: the fundamentals
    Wednesday 27 January, 6-8pm
  • State aid law in times of crisis: an economic perspective
    Tuesday 3 February, 3-5pm
  • State aid control III: State aid control and the tax system
    Wednesday 10 January, 6-8pm
  • Case study in State aid control
    Tuesday 16 February, 3-5pm
  • Looking back and forth: The transformation of state aids law and policy: from applied politics to applied economics?
    Tuesday 23 February, 3-5pm
  • State aid control IV: Enforcement of State aids law
    Tuesday 9 March, 3-5pm

Other courses available include:

  • Competition Law and the State in Europe
    11 wks from January 2010, £950
  • European Competition Law: Enforcement and Comparative Issues
    11 weeks from January 2010, £950
  • Law and Economics of Regulated Industries: Between Competition and Regulation
    11 weeks from January 2010, £950

Please feel free to foward this email to others to whom these courses might be of interest.

For more information about the courses, fees and registration, click on the link below.

UCL Law Faculty
Bentham House
Endsleigh Gardens
London, WC1H 0EG
United Kingdom
  Can you attend this event?  Respond Here

December 26, 2009 | Permalink | Comments (0) | TrackBack (0)

Friday, December 25, 2009

3rd Annual Experts' Guide of Best Antitrust Publications: 2009 Edition

Posted by D. Daniel Sokol

Our yearly Experts' Guide to the best antitrust publications is back.  Enjoy these works that you may have missed.  The big winner this year is Einer Elhauge, Bundled Discounts, and the Death of the Single Monopoly Profit Theory, 123 Harvard Law Review 397 (2009):

John Connor

Purdue – Applied Economics

Nathan Miller, Strategic Leniency and Cartel Enforcement, American Economic Review, Vol 99, No. 3 (2009), 750-568

M. Elina Cruz

Catholic University of Chile – Law


Nic Economides

NYU – Stern School of Business

Nicholas Economides, Loyalty/Requirement Rebates and the Antitrust Modernization Commission: What is the Appropriate Liability Standard?, Antitrust Bulletin vol. 54, no. 2, Summer 2009, pp. 259-279;


Nicholas Economides and Ioannis Lianos, The Elusive Antitrust Standard on Bundling in Europe and in the United States at the Aftermath of the Microsoft Cases, in Antitrust Law Journal 76/3 (2009)

Alberto Heimler

Scuola Superiore della Pubblica Amministrazione (School of Public Administration) – Economics

Greg Werden, Essays on Consumer Welfare and Competition Policy ,

Max Huffman

IU-Indianapolis - Law

Alan Devlin, Antitrust in an Era of Market Failure, (forthcoming Harvard Journal of Law and Public Policy)

Ioannis Lianos

UCL – Law

Maurice Stucke, Does the Rule of Reason Violate the Rule of Law?, 42 U.C. Davis Law Review 1375 (2009); Einer Elhauge, Bundled Discounts, and the Death of the Single Monopoly Profit Theory, 123 Harvard Law Review 397 (2009)

Barak Orbach

University of Arizona – Law

Herbert Hovenkamp, The Insurance Industry's Antitrust Immunity,; Einer Elhauge, Bundled Discounts, and the Death of the Single Monopoly Profit Theory, 123 Harvard Law Review 397 (2009)

Nicolas Petit

University of Liege Law School

Einer Elhauge, Bundled Discounts, and the Death of the Single Monopoly Profit Theory, 123 Harvard Law Review 397 (2009)

Barak Richman

Duke University – Law

Einer Elhauge, Bundled Discounts, and the Death of the Single Monopoly Profit Theory, 123 Harvard Law Review 397 (2009)

Barry Rodger

University of Strathclyde - Law

D.I. Baker,  ‘An Enduring Antitrust divide Across the Atlantic over whether to Incarcerate Conspirators and when to restrain Abusive Monopolists’ [2009] 5(1) European Competition Journal145-200

Daniel Sokol

University of Florida – Law

Nathan Miller, Strategic Leniency and Cartel Enforcement, American Economic Review, Vol 99, No. 3 (2009), 750-568; Einer Elhauge, Bundled Discounts, and the Death of the Single Monopoly Profit Theory, 123 Harvard Law Review 397 (2009)

Andreas Stephan

University of East Anglia – Law

Bruce Lyons, Competition Policy, Bailouts and the Economic Crisis, available at!CCP09-4.pdf.

Maurice Stucke

University of Tennessee – Law



Phil Weiser

University of Colorado – Law

Scott Hemphill, An Aggregate Approach to Antitrust: Using New Data and Rulemaking to Preserve Drug Competition," 109 Columbia Law Review 629 (2009).

December 25, 2009 | Permalink | Comments (0) | TrackBack (0)

Thursday, December 24, 2009

Inferring market power from retail deposit interest rates in the euro area

Posted by D. Daniel Sokol

Laura Vajanne (Bank of Finland Research) is Inferring market power from retail deposit interest rates in the euro area.

ABSTRACT: This paper tests for the existence of market power in banking, using data on demand deposit rates of households and corresponding market rates in five euro area countries. An implicit measure for market power is based on a partial adjustment model that also allows for an asymmetric response of deposit rates to changes in market rates. The period covers the ten years since introduction of the euro. The analysis indicates that banks are exercising major market power within the euro area. In addition to general sluggishness, bank deposit rates’ reactions are clearly asymmetric: flexible when market rates are decreasing and rigid when rates are increasing. The degree of asymmetric behaviour can be interpreted as a further indication of the market power banks exercise. Despite country differences, a general pattern of interest rate adjustment in demand deposit pricing is observable.

December 24, 2009 | Permalink | Comments (0) | TrackBack (0)

Testing Theories of Scarcity Pricing in the Airline Industry

Posted by D. Daniel Sokol

Steven L. Puller, Anirban Sengupta, and Steven N. Wiggins are Testing Theories of Scarcity Pricing in the Airline Industry.

ABSTRACT: This paper investigates why passengers pay substantially different fares for travel on the same airline between the same two airports. We investigate questions that are fundamentally different from those in the existing literature on airline price dispersion. We use a unique new dataset to test between two broad classes of theories regarding airline pricing. The first group of theories, as advanced by Dana (1999b) and Gale and Holmes (1993), postulates that airlines practice scarcity based pricing and predicts that variation in ticket prices is driven by differences between high demand and low demand periods. The second group of theories is that airlines practice price discrimination by using ticketing restrictions to segment customers by willingness to pay. We use a unique dataset, a census of ticket transactions from one of the major computer reservation systems, to study the relationships between fares, ticket charact! eristics, and flight load factors. The central advantage of our dataset is that it contains variables not previously available that permit a test of these theories. We find only mixed support for the scarcity pricing theories. Flights during high demand periods have slightly higher fares but exhibit no more fare dispersion than flights where demand is low. Moreover, the fraction of discounted advance purchase seats is only slightly higher on off-peak flights. However, ticket characteristics that are associated with second-degree price discrimination drive much of the variation in ticket pricing.

December 24, 2009 | Permalink | Comments (0) | TrackBack (0)

Efficiency of EU Merger Control in the 1990-2008 Period

Posted by D. Daniel Sokol

Goran Serdarevic (EEIP) and Petr Teply (EEIP) undertake work on Efficiency of EU Merger Control in the 1990-2008 Period.

ABSTRACT: The main goal of this paper is to provide an analysis of key regulatory changes in the European merger control and to evaluate their real impact on the efficiency of merger regulation. Our main contribution is an empirical analysis of a unique representative sample of 161 horizontal mergers covering the final regulatory assessments during the period from 1990 to 2008. We use stock market data to identify those cases where there are discrepancies between the Commission and market evaluation of the merger. The PROBIT model is then used to further investigate the sources of these discrepancies. Our results suggest that the Commission’s decisions are not purely explained by the motive of protecting consumer welfare and that other political and institutional factors do play a role in setting policy. We did not find evidence that the Commission protects competitors at the expense of consumers and foreign firms. Moreover, we ! conclude that the regulatory reform introduced in 2004 has significantly enhanced efficiency of the European merger control. To the authors’ best knowledge, this paper is the first study using stock market data to evaluate an impact of the recent EU merger control.

December 24, 2009 | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 23, 2009

Private label introduction: Does it benefit the supply chain?

Posted by D. Daniel Sokol

Marc Sachon (IESE Business School) and Victor Martinez de Albeniz (IESE Business School) ask Private label introduction: Does it benefit the supply chain?

ABSTRACT: Private labels, also called store brands or distributor brands, have changed the retail industry during the last three decades. Consumer data shows strong growth of private label market share, and in countries like Germany or Spain, the penetration of private labels is above 30% of total retail sales. This paper analyzes the channel dynamics in a category where a private label is introduced. We focus on the impact of private labels on retail and wholesale equilibrium prices, as well as on the profits of each firm of the supply chain. While private label introduction helps the retailer reduce manufacturer brand's prices, we find that it does not always improve the total profits of the supply chain. Generally, the supply chain benefits from this introduction only when cross-elasticities are small, i.e., competitive interactions are weak. With our model, we formulate the general conditions under which retailers should consider introducing private labels.

December 23, 2009 | Permalink | Comments (0) | TrackBack (0)

Price Controls and Consumer Surplus

Posted by D. Daniel Sokol

Jeremy Bulow (Graduate School of Business, Stanford University) and Paul Klemperer (Nuffield College, University of Oxford, Oxford, UK) analyze Price Controls and Consumer Surplus.

ABSTRACT: The condition for when a price control increases consumer welfare in perfect competition is tighter than often realised. When demand is linear, a small restriction on price only increases consumer surplus if the elasticity of demand exceeds the elasticity of supply; with log-linear or constant-elasticity, demand consumers are always hurt by price controls. The results are best understood - and can be related to monopoly-theory results - using the fact that consumer surplus equals the area between the demand curve and the industry marginal-revenue curve.

December 23, 2009 | Permalink | Comments (0) | TrackBack (0)

A Nonparametric Analysis of the Cournot Model

Posted by D. Daniel Sokol

Andrés Carvajal (CRETA and Department of Economics, University of Warwick) and John Quah (Department of Economics, Oxford University, Oxford) provide A Nonparametric Analysis of the Cournot Model.

ABSTRACT: An observer makes a number of observations of an industry producing a homoge- neous good. Each observation consists of the market price, the output of individual firms and perhaps information on each firm's production cost. We provide vari- ous tests (typically, linear programs) with which the observer can determine if the data set is consistent with the hypothesis that firms in this industry are playing a Cournot game at each observation. When cost information is wholly or partially unavailable, these tests could potentially be used to derive cost information on the firms. This paper is a contribution to the literature that aims to characterize (in various contexts) the restrictions that a data set must satisfy for it to be consis- tent with Nash outcomes in a game. It is also inspired by the seminal result of Afriat (and the subsequent literature) which addresses similar issues in the context of consumer demand, though! one important technical difference from most of these results is that the objective functions of firms in a Cournot game are not necessarily quasiconcave.

December 23, 2009 | Permalink | Comments (0) | TrackBack (0)

Intra-Enterprise Activity, Joint Ventures and Sports Leagues: Identifying Unilateral Conduct Under the Antitrust Laws

Posted by D. Daniel Sokol

Herb Hovenkamp (Iowa- Law) explains Intra-Enterprise Activity, Joint Ventures and Sports Leagues: Identifying Unilateral Conduct Under the Antitrust Laws.

ABSTRACT: In the American Needle case the Supreme Court will consider whether the NFL’s decision to give an exclusive trademark license to one firm should be counted as “unilateral” on the NFL’s part, or rather as the concerted joint venture activity of the NFL’s individual member teams. The intellectual property in question is not trademarks in the NFL itself, but rather the trademarks and other intellectual property developed separately by each individual team, and which the teams in turn have licensed exclusively to the NFL. In general, when a joint venture is engaged in its own business the unilateral characterization is appropriate. Thus, for example, if the ABA decides to hold its convention in San Francisco rather than Chicago that decision should not ordinarily be treated as a “conspiracy” of the ABA’s members to boycott Chicago. By the same token, the NFL has many employees of its own, and labor disputes between those employees and the NFL would be considered as involving a single employer. By contrast, when disputes involving the players of individual teams are at issue the NFL is properly treated as a collaboration of employers, as the Supreme Court assumed to be the case in its Brown vs. Pro Football decision in 1996. A decision that the NFL is a joint venture of multiple firms when it is managing the separable business interests of the member teams need not result in per se illegality or, for that matter, not even in particularly harsh treatment. Output limiting restrictions by legitimate joint ventures are dealt with under the ancillary restraints doctrine and tested for reasonableness. The great majority of such restraints are reasonable and lawful. By contrast, even efficient joint ventures can become vehicles for the naked restraints of their members.

December 23, 2009 | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 22, 2009

Tropical Paradise of Fiji Looking for Competition Lawyer

Posted by D. Daniel Sokol

The Commerce Commission has a vacancy for the position of a Competition Lawyer. The Competition Lawyer reports to the Chairman through the Chief Executive Officer on Legal issues relating to Competition, Pricing and Consumer Interests and is part of a Multi-Disciplinary Team of Professionals.
The major tasks of the Competition Lawyer:
• To facilitate the work of the Commerce Commission and provide Legal Advise and support to the Commission on enquiries and investigation by Competition Authorities;
• Involves in High Level of contact with Regulated Companies in Fiji;
• Provide Legal Investigations and support to the Commission on Economic & Competition Regulation Cases;
• Representation of the Commission in court proceedings;
• Preparation and Drafting of Legislative amendments and also Policy documents;
• Indentify and managing Competition Law Risks across Business in Fiji;
• Advise the Commission and Business Colleagues on Competition Law Risks; - Examine anti-competitive behavior of business;
• The position is responsible for the effective operation and administration of the Fair Trading Decree 1992 (as amended 1998) and the Commerce Act 1998.
This position will suit a qualified lawyer with 5 years plus postgraduate experience in a leading private practice firm, a financial services institution or a government regulatory body. You will need good experience in competition law. Qualification requires a Postgraduate Degree (preferably Masters) in Law and Regulatory Economics. Technical knowledge on the issues dealt with by the Commission will be an added advantage.

Salary: F$40,000 to $55,000.

Applications should be marked: Competition Lawyer Position and addressed to:

The Chairman
Commerce Commission
P O Box 5031
Fiji Islands.
Or e-mail to; or
Applications should be received by 16 January 2010

December 22, 2009 | Permalink | Comments (0) | TrackBack (0)

Economic Analysis and Evaluation of 'Fair Prices' - Can Antitrust and International Taxation Learn from Each Other?

Posted by D. Daniel Sokol

Alessandro Turina, Bocconi University and Nicolo Zingales, Bocconi University write on the under-developed intersection between tax and antitrust in Economic Analysis and Evaluation of 'Fair Prices' - Can Antitrust and International Taxation Learn from Each Other?

ABSTRACT: The purpose of this paper is to illustrate the different kinds of concerns related to the notion of “unfair prices” in tax and competition policy, respectively. The focus is on the rules governing transfer pricing within the setting of international tax policy, and on those governing the treatment of excessive as well as predatory pricing, according to competition policy.

After a brief methodological background, the paper introduces the various notions of transfer, excessive and predatory pricing stressing the differences and similarities in the respective regulations. It does so distinguishing the rules established by the United States and the OECD, in the area of transfer pricing, and the different approach taken by the US and the EU, with respect to competition policy.

Finally, the paper advances some tentative reflections on the possible scope for convergence between the three aforementioned areas of enquiry, elaborating some proposals

December 22, 2009 | Permalink | Comments (0) | TrackBack (0)

Damien Geradin joins Michigan's Law Faculty as the William W. Cook Global Law Professor

Posted by D. Daniel Sokol

European and comparative competition law expert Damien Geradin (Tilburg University, College of Europe) will join the University of Michigan Law Faculty starting in 2010.  Damien is one of the stars of European antitrust, especially in the very hot area of innovation and antitrust.  Given Damien's extensive writing in the area of IP-Antitrust interface issues, this is an important pick-up for Michigan.  With the addition of Dan Crane to the law faculty this fall (in my mind the best 40 and under antitrust law professor in the US), Michigan has significantly improved its antitrust law offerings and done so with two people who are synergistic with the very strong IP team at Michigan.  In terms of the overall university, this adds to the very strong antitrust/IO group that includes Suslow, Levenstein, Kuhn, and Lafontaine. Among the adjuncts in Michigan's law school is the very talented Steve Cernak who has had the very busy task of serving as GM's antitrust guru through what is a very difficult time for the company.

December 22, 2009 | Permalink | Comments (0) | TrackBack (0)

The Pleading Problem in Antitrust Cases and Beyond

Posted by D. Daniel Sokol

Herb Hovenkamp (Iowa Law) explains The Pleading Problem in Antitrust Cases and Beyond.

ABSTRACT: In Twombly the Supreme Court held that an antitrust complaint failed because its allegations did not include enough “factual matter” to justify proceeding to discovery. Two years later the Court extended this new pleading standard to federal complaints generally. Twombly’s unnecessarily broad language had led to a broad rewriting of federal pleading doctrine.

Naked market division conspiracies such as the one pled in Twombly must be kept secret because antitrust enforcers will prosecute them when they are detected. This inherent secrecy, which the Supreme Court did not discuss, has dire consequences for pleading if too much factual specificity is required. Indeed, it can close the door in cases where the conspiracy is reasonably suspected but supporting evidence has not already been uncovered.

In the paradigm cartel case the defendants meet secretly in a hotel room and plot prices or output. But antitrust agreements can be proven by other evidence, including evidence of interdependence, parallel behavior, and actions contrary to independent self-interest. By indicating that the complaint failed because it did not state “which of their employees” may have conspired and that there was some “when” or “where” that the agreement took place, the Court was apparently requiring the plaintiff to plead something in its complaint that existing law would not require it to show in order to avoid summary judgment or a JML at trial. Or to say it differently, the Court was changing conspiracy doctrine at the same time that it was changing pleading doctrine.

The most salient fact about Twombly is that, although it was a proof-of-agreement case, the claim was of geographic market division rather than parallel pricing. For all of its lengthy discussion about the facts essential to a good complaint, the Supreme Court paid little attention to the difference between price fixing and market division. While parallel pricing typically is interdependent conduct, parallel failures to enter one another’s markets typically are not. As a result, methods of indirect proof that might work in a case alleging unlawful price fixing are unlikely to work in one alleging unlawful market division. Twombly clearly reached the correct conclusion, but it could have done less damage to the values of notice pleading stated in the Federal Rules had it focused more narrowly on the mechanisms by which anticompetitive agreements are proven. Pleading reform requires, not an increase in “factual matter,” but rather a closer correlation between the legal elements that must be proven and the allegations in a complaint.

December 22, 2009 | Permalink | Comments (0) | TrackBack (0)

Sequential Search with Incompletely Informed Consumers: Theory and Evidence from Retail Gasoline Markets

Posted by D. Daniel Sokol

Maarten Janssen, Paul Pichler, and Simon Weidenholzer (all Department of Economics, Vienna) explain Sequential Search with Incompletely Informed Consumers: Theory and Evidence from Retail Gasoline Markets.

ABSTRACT: A large variety of markets, such as retail markets for gasoline or mortgage markets, are characterized by a small number of firms offering a fairly homogenous product at virtually the same cost, while consumers, being uninformed about this cost, sequentially search for low prices. The present paper provides a theoretical examination of this type of market, and confronts the theory with data on retail gasoline prices. We develop a sequential search model with incomplete information and characterize a perfect Bayesian equilibrium in which consumers follow simple reservation price strategies. Firms strategically exploit consumers being uninformed about their production cost, and set on average higher prices compared to the standard complete information model. Thus, consumer welfare is lower. Using data on the gasoline retail market in Vienna (Austria), we further argue that incomplete information is a necessary feature to e! xplain observed gasoline prices within a sequential search framework.

December 22, 2009 | Permalink | Comments (0) | TrackBack (0)

Monday, December 21, 2009

The Determinants of State-Level Antitrust Enforcement

Posted by D. Daniel Sokol

Robert M. Feinberg (American U - Econ) and Kara M. Reynolds (American U - Econ) explain The Determinants of State-Level Antitrust Enforcement.

ABSTRACT: While there has been a considerable literature exploring determinants of antitrust enforcement in the United States, studies have been based either on aggregate federal enforcement data over time (exploring cyclical influences) or cross-industry studies, usually for a single year or aggregated over several years. What has never been investigated is the pattern of state-level antitrust. This is somewhat surprising, as this has been a major activity of many state Attorneys General. In this paper, we explain state antitrust enforcement across states and time (for a 15-year period), examining a number of economic and political determinants which have been proposed in the literature.

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

Selective contracting and foreclosure in health care markets

Posted by D. Daniel Sokol

Michiel Bijlsma, Jan Boone, and Gijsbert Zwart analyze Selective contracting and foreclosure in health care markets.

ABSTRACT: We analyze exclusive contracts between health care providers and insurers in a model where some consumers choose to stay uninsured. In case of a monopoly insurer, exclusion of a provider changes the distribution of consumers who choose not to insure. Although the foreclosed care provider remains active in the market for the non-insured, we show that exclusion leads to anti-competitive effects on this non-insured market. As a consequence exclusion can raise industry profits, and then occurs in equilibrium. Under competitive insurance markets, the anticompetitive exclusive equilibrium survives. Uninsured consumers, however, are now not better off without exclusion. Competition among insurers raises prices in equilibria without exclusion, as a result of a horizontal analogue to the double marginalization effect. Instead, under competitive insurance markets exclusion is desirable as long as no provider is excluded by all ins! urers.

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


Posted by D. Daniel Sokol

Andrés Alvarez (Universidad Nacional de Colombia, Escuela de Economía) explores EARLY NEOCLASSICAL VIEWS ON MONOPOLY: THE COURNOTIAN HERITAGE.

ABSTRACT: This paper analyses how Cournot‟s views on Monopoly have influenced the marginalists authors. It is argued that there are two different points of view in the cournotian evaluation of the consequence of Monopoly. The first one is a purely theoretical construction adopted in modern economic theory. Even if it is a theoretical one it has normative consequence. From these it is derived a negative appreciation on Monopoly. The second is a more pragmatic point of view. Whereas the former is purely theoretical the latter is derived from multiple examples and it cannot be based on the same theoretical framework as the well known theory of monopoly prices. From this pragmatic point of view, Cournot constructs some “positive” appreciations on the existence of monopolies. These two different appreciations on imperfect markets have influenced in different ways the works of the authors of the Marginal Revolution. Following this! distinction we study the different points of view of Walras, Edgeworth and Marshall on Monopoly. We show that even if Walras‟s theory of Monopoly does not have the same theoretical foundations of Cournot‟s, his normative point of view on monopolies is closely related with the “purely theoretical” conclusions. Walras frequently quoted Cournot on these matters. Edgeworth and Marshall have a different point of view on Monopoly, mainly pragmatic and sometimes quite positive from the normative point of view. However Walras‟s as well as Edgeworth‟s and Marshall‟s theories on monopoly are not based on their theories of perfect competition. We conclude that the marginlists views on imperfect competition are not constructed as a “perturbation” or a “friction” of a perfectly competitive market.

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

Contract Incompleteness, Globalization and Vertical Structure: an Empirical Analysis

Posted by D. Daniel Sokol

Luigi Pascali (Boston College - Econ) explains Contract Incompleteness, Globalization and Vertical Structure: an Empirical Analysis.

ABSTRACT: This paper studies the effects of international openness and contracting institutions on vertical integration. It first derives a number of predictions regarding the interactions between trade barriers, contracting costs, technology intensity, and the extent of vertical integration from a simple model with incomplete contracts. Then it investigates these predictions using a new dataset of over 14000 firms from 45 developing countries. Consistent with theory, the effect of technology intensity of domestic producers on their likelihood to vertically integrate is decreasing in the quality of domestic contracting institutions and in international openness. Contract enforcing costs are particularly high in developing countries and their effects on the vertical structure of technological intensive firms may have significant welfare costs. If improving domestic contracting institutions is not feasible an equivalent solution is ! to increase openness to international trade. This would discipline domestic suppliers reducing the need for vertical integration.

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

Sunday, December 20, 2009

China’s Antimonopoly Law—One Year Down: Abuse of Dominance Under the AML—A Chaotic Scene

Posted by Wentong Zheng

In this blog series on China’s Antimonopoly Law (“AML”), I have so far focused on issues related to merger review.  An equally important—if not more important—component of the AML deals with abuse of dominant market position.  Unlike merger review issues, abuse-of-dominance issues in China have received surprisingly little amount of attention, despite that they arguably pose more significant challenges for China’s fledgling antitrust regime.  We have already seen some of those challenges in my earlier post on China’s first court decision under the AML (see here).  In this post, I will provide a broader view of the abuse-of-dominance issues in China.


The AML’s abuse-of-dominance provisions are contained in Articles 17, 18, and 19.  As discussed in my earlier post, Article 17 of the AML sets forth an exhaustive list of conducts that constitute abuse of dominant position and therefore are prohibited by the AML.  This list of conducts shows a striking resemblance to the conducts that are generally considered abuses of dominance under the antitrust laws of the United States and the European Union.  The conduct specified in Articles 17(1)—selling products at unfairly high prices or buying products at unfairly low prices—mirrors the conduct outlawed under EC Article 82(a).  The conducts specified in Articles 17(2) through 17(6) correspond to what are known in the United States and the European Union as predatory pricing, refusal to deal, exclusive dealing, tying, and price discrimination, respectively.  Article 17(7) grants the antimonopoly enforcement agency the power to identify abuse-of-dominance conducts other than those specifically enumerated in the other sections of Article 17.


But how to determine whether a firm possesses a dominant position?  Article 18 of the AML provides for a list of factors that are relevant for such a determination, including the firm’s market share, the competitiveness of the relevant market, the financial and technological capabilities of the firm, the ease of market entry, and some other factors that I will not cite one by one here.  Article 19 of the AML further provides for a rebuttable presumption of dominant position based on market shares of firms in the relevant market.


Like other provisions of the AML, the abuse-of-dominance provisions of the AML are enforced by the “antimonopoly enforcement agency” as well as by private actions in courts.  The AML as a general matter prefers administrative enforcement to judicial enforcement, as evidenced by the fact that the administrative enforcement provisions are prominently figured in the AML text while the provision that authorizes private right of actions is ambiguously worded and is placed in a non-conspicuous place in the AML text (see my earlier postfor more details on this).  When it comes to abuse-of-dominance issues, the AML’s preference for administrative enforcement is more explicit: Under Article 17, the conducts that constitute abuse of dominant position include those determined as such by the antimonopoly enforcement agency.


But who is the “antimonopoly enforcement agency”?  That question is widely believed to be among the key ones that led to the prolongation of the AML’s drafting process.  The question was not sorted out until well after the AML was adopted.  Under the current arrangement, two existing agencies—State Administration of Industry and Commerce (“SAIC”) and National Development and Reform Commission (“NDRC”)—split the responsibility of enforcing the AML’s abuse-of-dominance provisions.  The division of labor between the two agencies is in keeping with the historical roles the two agencies and their predecessors played in enforcing various ad hoc antitrust rules prior to the enactment of the AML.  SAIC is the agency charged with enforcing China’s Anti-Unfair Competition Law, which contains several provisions that were, prior to the enactment of the AML, the legal basis of the prohibition of certain abuse-of-dominance conducts.  Not surprisingly, SAIC is now responsible for enforcement against abuse-of-dominance violations under the AML, except those that involve price.  Abuse-of-dominance violations involving price are carved out to be enforced by NDRC, which has traditionally been the agency charged with price regulations and, to an increasingly less extent, price setting.  The same division of labor exists between SAIC and NDRC as to enforcement against horizontal agreements, another important component of the AML that I will not specifically address in this blog series because of its less controversial nature.


After the AML took effect, both SAIC and NDRC established or designated their respective “bureau” responsible for abuse-of-dominance enforcement.  The two agencies also issued draft regulations concerning procedural and substantive issues in implementing the AML’s abuse-of-dominance provisions and sought public comments on the draft regulations. As of now, only SAIC’s procedural regulations have taken effect; both SAIC’s and NDRC’s substantive regulations have yet to be officially promulgated. 


Despite the great fanfare that accompanied the adoption of the AML, more than one year later, the number of enforcement actions brought by SAIC and NDRC under the AML against abuse-of-dominance conducts is—zero.  One possible explanation for the two agencies’ inaction is their lack of capacity in dealing with abuse-of-dominance issues in the context of antitrust law.  The two agencies also face a more fundamental problem: with few exceptions, most of the enterprises in China that possess dominant market position are China’s largest state-owned-enterprises (“SOEs”), many of which wield enormous political clout and occupy a position in the Chinese bureaucratic hierarchy one or two levels above the antimonopoly enforcement bureaus of SAIC and NDRC.  Within the current enforcement framework, it is simply very difficult, if not outright impossible, for the antimonopoly enforcement bureaus of SAIC and NDRC to pursue most abuse-of-dominance cases.


There could be many other reasons for SAIC’s and NDRC’s passivity in their enforcement against abuse-of-dominance conducts, but scarcity of the conducts is certainly not one of them.  China has no shortage of highly publicized abuse-of-dominance violations, committed primarily by its largest SOEs.  Take China’s gasoline market for an example.  China has a large number of independent gasoline retailers, most of which are privately owned.  Those independent gasoline retailers have to purchase their gasoline from China’s two state-owned integrated oil companies, China National Petroleum Corporation (“CNPC”) and China Petroleum and Chemical Corporation (“Sinopec”), which under a 1999 law became China’s only two lawful gasoline wholesalers.  In the meantime, the independent gasoline retailers directly compete with gasoline stations owned and operated by CNPC and Sinopec.  In 2007-2008, when the Chinese economy was booming and the demand for gasoline soaring, CNPC and Sinopec limited or cut off their supplies of gasoline to the independent gasoline retailers, resulting in one third of them shutting doors.  It was not until early 2009, after world oil prices plummeted in the wake of the global financial crisis, that CNPC and Sinopec restored their gasoline supplies to the independent gasoline retailers.  In the face of such brazen violations of the AML’s “refusal to deal” prohibition, SAIC and NDRC simply stood on the sidelines and did nothing.


In stark contrast to SAIC’s and NDRC’s inactivity, the Chinese public has been very aggressive in pursuing private lawsuits in Chinese courts against alleged abuse-of-dominance violations.  Unfortunately, those private lawsuits tend to raise spurious claims that could be said to arise under the AML’s abuse-of-dominance provisions only through semantic manipulation.  We have already seen an example of such spurious claims in my earlier poston China’s first court decision under the AML, where a web portal’s efforts to enforce its copyrights in an online novel were somewhat claimed to constitute “exclusive dealing” as prohibited under Article 17(4) of the AML.  As I also mentioned in that post, another example of the spurious claims is that a bank that refused to “deal” with one of its retail customers was said to have violated the “refusal to deal” provision under Article 17(3), when the refusal to deal in question had no adverse effects on competition.  Yet another example of the spurious claims is the now-settled lawsuit against China Mobile, where the plaintiff, a mobile phone subscriber of China Mobile, claimed that China Mobile violated the AML’s prohibition of price discrimination under Article 17(6) by charging subscribers different fees for substantially similar services.  It is obvious that the complained conduct in that lawsuit, even if true, does not cause any injury to competition and therefore does not constitute an antitrust violation.  Littered with so many spurious lawsuits, China’s abuse-of-dominance scene has become confusing to the point of being chaotic.


I previously mentioned that the two agencies in charge of enforcing the AML’s abuse-of-dominance provisions are hamstringed in pursuing China’s largest SOEs and as a matter of fact are not pursuing those SOEs.  In my next post, I offer some thoughts on what that fact, along with some other facts, means for China’s broader competition framework.  I argue that more than a year after the AML went into effect, there appears to be a de-facto “dual-track” competition regime taking shape in China, with one track laid within the AML governing private and foreign enterprises and the other track laid outside of the AML governing the largest SOEs. 



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