Antitrust & Competition Policy Blog

Canadian Competition Bureau Publishes Competitor Collaboration Guidelines

Posted by D. Daniel Sokol

Competitor Collaboration Guidelines

Enforcement Guidelines

December 23, 2009

(PDF; 574 KB; 63 Pages)

Section 5 FTC Act Blog Symposium: Comments of Herb Hovenkamp

Posted by Herb Hovenkamp

The idea that FTC Act’s §5’s “unfair methods of competition” has a kind of penumbral reach to practices that are not covered by the Sherman Act makes historical as well as some logical sense.  The framers of the FTC Act very likely held that view.  While both Sherman Act provisions are quite open ended in their coverage, they also have limitations.  Section 1 of the Sherman Act requires an “agreement” while §5’s “unfair methods of competition” does not.  While application of §5 to anticompetitive interaction that does not satisfy the agreement requirement has been attempted several times with little success, there are ways that it could be given new life in the future.  Indeed, explicit agreements are most likely to be found in markets where they are least likely to work.  A second limitation is that §2 of the Sherman Act reaches unilateral conduct only if it “monopolizes” or creates a dangerous probability of doing so.  Section 2 has no application to “leveraging” situations that European competition law’s “abuse of a dominant position” formulation (Article 82) permits.

There are also compelling institutional reasons why the FTC can move into areas where the Sherman Act has not.  It has advantages in procuring discovery that can avoid the pleading problems with respect to covert activity that the Supreme Courts Twombly and Iqbal decisions have produced.  The FTC commands more expertise and does not use juries.  Most importantly, because private parties cannot enforce §5, the FTC can move more aggressively without worrying about the excessive litigation and overdeterrence that often results from private plaintiff lawsuits.  The social cost of an error can be much lower when the only intervention is a cease and desist order against a challenged practice that cannot be shown to be beneficial.

Historically, the FTC itself has not realized these possibilities, mainly because of its tendency to condemn practices where there was no serious injury to competition under any reasonable definition.  This was true of its exclusive contracting claims in Brown Shoe and Motion Picture Advertising in the 1960s.  Unfortunately the FTC may be about to make the same mistake again in the Intel case, pursuing pricing practices that are very likely essential to cost minimization in the computer processor industries.  Two problematic elements in its suggested relief are a requirement that pricing include an unspecified percentage of fixed costs, and prohibition of most market share discounts.  Processor chips are characterized by relatively high development costs, which are both fixed and sunk, fairly short product lifecycles, typically on the order of two or three years, and relatively low variable costs.  As a result, two things are true: first, a firm facing these constraints can minimize per unit costs by selling as many units as possible during the product’s life; and second, any incremental sale at a price sufficient to cover variable costs will make a positive contribution to fixed costs.  As a result, the FTC may be ordering Intel to price less aggressively, which will keep Intel’s own costs higher.  In addition, loyalty discounts are important in this setting because prices are bid up front and the price that can be bid is critically dependent on the number of units that will be sold.  Quantity discounts will not work because they discriminate against smaller OEMs and will thus serve to concentrate the computer manufacturing market.  In sum, before the FTC proceeds it must examine the economics of this market very carefully.  The most likely result of its proposed relief will be the creation of a duopoly in which Intel and AMD both earn high returns.  The FTC will have succeeded in protecting AMD, but at consumers’ expense.

Section 5 FTC Act Blog Symposium: Comments of Sean Heather

Posted by Sean Heather

Expanding Antitrust Doctrine?

The Chamber authored its views on the use of Section 5 in an article last September. In it we examined the past use of Section 5, acknowledged the courts acceptance of the FTC’s broad authority under the law, but also took note that the courts have consistently found fault with the FTC enforcement under Section 5 citing in many cases a lack of evidence and for failing to define the improper conduct according to acceptable criteria.  We concluded that the FTC’s use of Section 5 should not be an antitrust enforcement “catch all” and should not be used as a means of extending antitrust doctrine without clear guidelines articulated in advance.  

What does this mean for the Intel case?  And, if Intel has engaged in anticompetitive conduct, as the FTC alleges, why isn’t this a Section 2 case?

The U.S. Bureau of Labor Statistics has shown that the price of microprocessors has fallen more rapidly than any of its other 1200 tracked segments, and the pace of innovation and therefore the speed of microprocessors have undeniably improved at a staggering rate. The FTC, however, argues that prices would have fallen further faster, while at the same time outpacing the innovative advances achieved in the last decade. 

As a Section 2 case such an argument is hard for the FTC to prove, but as a Section 5 case it becomes hard to defend oneself against. Commissioner Rosch’s statement in the case spells this out explicitly as he explains the rationale for using Section 5 because he believes the real harm to consumers is simply the mere lack of choice, and does not rely on an increase in price.  Such a statement marks a significant departure from a reliance on rigorous economic analysis and empirical evidence to support enforcement findings.

Exploratory antitrust exercises are exactly what U.S. authorities have advised other countries against pursuing for decades. Now we seem to have forgotten our own advice.  In addition, the FTC case represents a potential government directed infringement on IP. The use of antitrust enforcement with forfeiture of IP rights as a remedy is what we have worried about in foreign jurisdictions, but the FTC’s complaint proposes such a remedy here at home.

If Intel has engaged in abusive conduct then the FTC should bring a Section 2 case.  However, doing so translates into a higher burden of proof standard, one in which the FTC looks to avoid by making this a Section 5 case and taking advantage of its overly wide interpretation of its authority.  In doing so, the United States is sending mixed signals internationally and undermining IP rights abroad.

Business above all requires transparent, predictable, and relatively stable antitrust enforcement. If the FTC wants to use Section 5 as a means of enforcement in expanded ways it should not be done after clear guidelines have been establishment and well in advance of any enforcement actions.  

Section 5 FTC Act Blog Symposium: Comments of Geoff Manne

Posted by Geoff Manne

The FTC should be ashamed

Seriously.  What interpretation of events is there other than that the FTC knew it could not prevail in a Section 2 case and decided to go in search of a back-up?  Commissioners Rosch and Leibowitz have been making noise about Section 5 for some time, and this seemed like the perfect opportunity to put it to the test—to make some new law that would favor the Commission in cases like this one where it “knows” there is injury but the Section 2 case law makes prevailing difficult nonetheless.  They have “found” their case, and Intel, its shareholders, consumers and competition generally will suffer mightily for their hubris. 

Chairman Leibowitz’ defense of the use of Section 5 is, quite frankly, astonishingly disingenuous.  First is the implicit defense I mention above—“hey, we can’t win under settled law [I guess repudiating the Section 2 Report just wasn’t enough. Bummer.-ed.] so let’s make some new law.  We are doing good after all, and if the law stands in our way, we should find a way around.”  Commissioner Rosch has made similar noises in the past.  I find this degree of hubris to be appalling and dangerous.

Second is the remarkable claim that Section 2 is a problem only because courts have taken its teeth away only because of abusive private litigation process—and the FTC is not susceptible to those process problems, so an emasculated Section 2 should not constrain the FTC.  There is so much wrong with this.  Section 2 jurisprudence and a concern for error costs is about substantive error as well as procedural imbalance; I’d even say it is more about the former.  Read any Section 2 case and the entirety of the decision (Microsoft, for example) is about how, as a matter of substance, we can be sure we’re getting it right in assessing speculative harms.  Of course there is a background procedural element that tips or rights the scales, but the claim that this is entirely what Section 2 jurisprudence is about is ridiculous on its face.  For the FTC to claim that it should not be bound by the substantive, economically-sensible limits of antitrust that courts have developed in their jurisprudence is for the FTC to claim that it is simply above the law—and the economics.  And I would be interested in seeing any case-law precedent for the claim that Section 2 jurisprudence is all about reining in private litigation and not about getting the economics right.

We’ve seen this kind of hubris before—when antitrust enforcers have pursued tenuous and costly cases despite massive uncertainty and copious conflicting evidence:  IBM and Microsoft come to mind.  I still relish Larry Lessig’s admission that he “blew it on Microsoft” because he couldn’t anticipate the future—a future that Microsoft told him and the court was inevitable and coming quickly.  Now we have Commissioner Rosch’s essentially-unmoored reading of Section 5 to support another speculative case—this time one almost certain otherwise to fail under the current law.  It is a disaster in the making not only for Intel but for the economy generally if the Rosch/Leibowitz reading of and approach to Section 5 takes off.   

Section 5 FTC Act Blog Symposium: Comments of Dan Crane

Posted by Dan Crane

I should disclose at the outset that I have been retained by Intel to provide policy analysis on the FTC enforcement action, although the views I express here are solely my own.  Also, I will shortly be disseminating a white paper addressing the Section 5 issues.  This is just a short preview of some of its key themes.

For several years, I have been advocating a separation between the liability norms in public and private antitrust enforcement, for many of the reasons expressed in the Commission's press release accompanying the Intel complaint.  Last fall, at the FTC's Section 5 hearings, I testified in favor of declaring Section 5 independence from the Sherman Act.  Still, the Intel case strikes me as a very bad one in which to declare independence.  It is likely to provoke a negative reaction from the reviewing courts and stymie further efforts at Section 5 independence.

The reason, in short, is that there is very little, if anything, in the FTC's comparative institutional advantages, that justifies Section 5 independence in the Intel case.  As I have previously written, it is imperative that when the FTC strikes out for Section 5 independence, it first articulate the reasons that Section 5 independence is justified in that particular case and suggest some judicial review principles that make clear that courts will continue to have a reviewing role to play.  In Intel, the Commission did no such thing.

To his credit, Commissioner Rosch made an attempt (in a statement that, tellingly, dissented from the Commission's filing of a supplemental Sherman Act Section 2 claim).  However, none of Commissioner's Rosch's four supposed justifications have anything to do with the FTC's comparative institutional advantages.  Rather, they sound like complaints with the interpretation courts have given to the Sherman Act.  This is exactly the sort of Commission rhetoric mostly like to provoke a strong judicial reaction.

In my forthcoming white paper, I articulate principles--based in the Commission's comparative institutional advantages--for when it should and should not declare Section 5 independence.  To give just one example here, much of the case law on Section 5 suggests that the Commission may have prophylactic powers in cases of incipient conduct. 

Perhaps this is because the Commission is better than the courts at predicting likely effects of emerging market forces.  But such a justification cannot possibly serve in Intel, since the conduct at issue has been in play for over a decade.

In short, while I strongly support separating Section 5 from the Sherman Act, great care has to be taken to pick the right cases for making the arguments.  Intel--a high-profile case with punitive and drastic proposed remedies entailing conduct paradigmatically covered by the Sherman Act--is the wrong case.

Section 5 FTC Act and the Meaning of the Intel Litigation Blog Symposium Day 1 Recap

Posted by D. Daniel Sokol

So far we have had commentary by:

Part 1. Josh Wright (George Mason)
Part 2. Keith Hylton (BU)
Part 3. Bob Lande (Baltimore)
Part 4. Dan Crane (Michigan)

Tomorrow we have additional contributors:
Part 5. Geoff Manne (Lewis & Clark)
Part 6. Sean Heather (US Chamber)
Part 7. Herb Hovenkamp (Iowa)

I have some thoughts of my own as well.  FTC Section 5 can be more expansive than Section 2 of the Sherman Act.  The question is should it be in the case of Intel.  I think before we answer that question, we go back to something that I raised during the Antitrust Remedies conference at UVA in August 2008.  If you do not have a good remedy for the conduct in question, do not bring a case.  The FTC seems to be pursuing a case based on a set of misguided assumptions about what the potential result of the case will be and whether it can create an effective remedy.  It is not clear to me that it will be pro-consumer.  Microsoft is in a much weaker state now not because of any of the antitrust remedies imposed but because unforeseen entrants (Google for example) have been effecvtive in their challenges to Microsoft.  Does a successful case against Intel under Section 5 (because I do not see the FTC winning under Section 2) lead to remedies that in itself do not create more problems than they solve? 

Section 5 FTC Act Blog Symposium: Comments of Bob Lande

Posted by Bob Lande

Much of the FTC’s complaint against Intel mirrors the charges in cases filed by the European Commission and others.  Because I have shown elsewhere why this conduct is anticompetitive (see, for example, “The Price of Abuse: Intel and the European Commission Decision” GCP: The Online Magazine for Global Competition Policy, No. 2, June 2009, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1434985 ) I will not repeat this explanation.  This Intel conduct should be found to violate Section 2 of the Sherman Act and should be heavily sanctioned.

If all the FTC had done was to echo these CPU chip lawsuits, its filing would have been in the public interest, but not earth shattering.  The Commission, however, added significant issues to the mix. First, it alleged similar exclusionary conduct involving another important relevant chip market, the market for graphic processing chips.  Second, other counts charged fundamentally different types of anticompetitive conduct that might only have violated Section 5 of the FTC Act (paragraph 97 of the FTC’s Complaint).  For this type of conduct the FTC apparently did not want to subject Intel to the nearly automatic private treble damage liability that would follow from a FTC finding that Intel violated the Sherman Act.  Alternatively, the FTC might not have believed a Sherman Act violation would be called for or sustained by reviewing courts.

For example, the FTC charged Intel with blocking or preventing innovation in the relevant markets (see, for example, paragraphs 94 b and g).  I am not aware of any case holding that this type of conduct, by itself, violates the Sherman Act.  Regardless, this conduct should be a Section 5 violation even if it does not rise to the level of a Sherman Act violation (with all  the market power, etc, elements that a Sherman Act violation would require).  Any non-deminimus blocking or preventing of a reasonable chance of innovation should violate Section 5, even if these actions had not at the time risen to the level where they helped Intel monopolize or maintain a monopoly in a relevant market.  This type of allegation is ready-made for Section 5 scrutiny, and the Commission might well believe that if it decided this conduct violated Section 2, with the private damages exposure that arises from a Sherman Act violation, a reviewing court might not sustain a violation.  

In addition, the FTC pled a pure consumer protection theory (paragraph 103).  This suggests the agency has (correctly) decided it is comfortable with the idea that a corporation can be a “consumer,”  and that the role of the agency is to protect choice and free market transactions for all “consumers”.  These alleged consumer protection violations are another example of conduct that the FTC might well believe should fall under Section 5, but not under Section 2. (This is in addition to the Commission’s idea that deception can help monopolize a market, a hybrid of consumer protection and competition law. Intel allegedly used deception to slow the market’s adoption of rivals' products as a monopolization technique.)

It was quite logical for the FTC to keep its options open by pleading both pure Section 5 violations and also violations of Section 2 of the Sherman Act.  In this way the Complaint  keeps the Commission’s options open and flexible.  The FTC ultimately can choose to use whatever mix of Section 2 and Section 5 theories the developing facts suggest.

Section 5 FTC Act Blog Symposium: Comments of Keith Hylton

Posted by Keith Hylton

The FTC claims that Intel violated Section 5 by giving discounts and rebates to customers in a manner that harmed its rival AMD, by designing its products in a manner that disadvantages rivals, and by acting too aggressively in protecting its intellectual property.  The remedies the FTC is seeking would impose burdensome restrictions on pricing, product design, and protection of intellectual property.

These claims are not well founded in U.S. antitrust law.  Unlike the EU courts, the U.S. courts have been reluctant to use antitrust law to regulate pricing and product design decisions, and to interfere with the protection of intellectual property.  Since the FTC’s likelihood of victory is low, one has to wonder what’s behind this enforcement action.  The most likely reason is that the FTC is pushing for a settlement that will result in the imposition of at least some of the restrictions.

If the FTC gets the settlement it is looking for, it will create an informal layer of monopolization law that is closer to EU law than U.S. law – informal law that gets enforced by the threat of litigation costs rather than the decision of a court.  Moreover, it will create a new function for Section 5 that is hard to square with its original purpose.

Section 5 FTC Act Blog Symposium: Comments of Josh Wright

Posted by Josh Wright

Employing Section 5 of the Federal Trade Commission Act to evade Section 2 monopolization law is not a legitimate use of Section 5.  This is, unfortunately, the only reasonable interpretation of the Commission’s choice to make Section 5 the primary hook of its Intel complaint.  While there is no doubt that Section 5 of the FTC Act was intended to allow the Commission to fill “gaps” in antitrust enforcement under the Sherman Act, the FTC’s attempts to pigeonhole its Section 5 complaint into this “gap” filling rationale is not persuasive.

Let’s start with the FTC’s joint statement in support of the Section 5 case:

Despite the long history of Section 5, until recently the Commission has not pursued free-standing unfair method of competition claims outside of the most well accepted areas, partly because the antitrust laws themselves have in the past proved flexible and capable of reaching most anticompetitive conduct.  However, concern over class actions, treble damages awards, and costly jury trials have caused many courts in recent decades to limit the reach of antitrust.  The result has been that some conduct harmful to consumers may be given a “free pass” under antitrust jurisprudence, not because the conduct is benign but out of a fear that the harm might be outweighed by the collateral consequences created by private enforcement.  For this reason, we have seen an increasing amount of potentially anticompetitive conduct that is not easily reached under the antitrust laws, and it is more important than ever that the Commission actively consider whether it may be appropriate to exercise its full Congressional authority under Section 5.

The Commission essentially argues that because courts have limited the scope of the Sherman Act, there is a legitimate fear that the antitrust laws might not reach every bit of conduct that might harm consumers.  In turn, this narrowed scope of the Sherman Act warrants an expanded use of the Section 5 authority.

Commissioner Rosch offers a more nuanced view of his preference for Section 5 (to the exclusion of Section 2) in his separate statement.  Commissioner Rosch contends that Section 5 is the appropriate antitrust weapon of choice against Intel because: (1) in markets with few players, like the microprocessor market, it is tough to distinguish harm to competitors from harm to competition; (2) the reduction of consumer (whether OEM or end user) “choice” warrants antitrust action even if the that loss is not also associated with a reduction in output, increase in price, or some demonstrably measurable competitive harm; (3) “course of conduct” monopolization claims are like “invitation to collude” cases and are therefore appropriate under Section 5; and (4) because the Commissioner believes intent evidence is relevant in this case (and presumably most cases) and some cases interpreting the Sherman Act restrict its use.

These arguments fail to justify use of the Commission’s Section 5 authority in the Intel matter.  Further, these arguments provide only a thin veil for what appears to be the more likely reason that the Commission is choosing to exercise its Section 5 authority against Intel – to evade the strict requirements of proof of competitive harm embedded into Section 2 of the Sherman Act. 

Section 2 jurisprudence has developed in a manner consistent with the “error-cost approach” to the design of optimal legal standards and allocations of burdens.  That is, the Leibowitz/Rosch narrative that the reduction in scope of Section 2 over time immunizes defendants despite their anticompetitive conduct because of some sort of aversion to private enforcement is simply wrong.  Moreover, it’s wrong in an important way.  The fear that emerges out of Credit Suisse, Trinko, Brooke Group, and Linkline is not merely that private actions are bad, but rather that error costs are a real, measurable problem.  In other words, the fear is that: (1) it is very difficult to determine in the first instance whether would-be exclusionary conduct is pro-competitive, anti-competitive, or competitively neutral, (2) consequently, this raises the inevitability of Type I and Type II errors, (3) as per Easterbrook’s The Limits of Antitrust, the former should be of greater concern because they create more substantial social costs (”error costs”).  Given (1)-(3), the Supreme Court has adopted liability rules that reflect the realities of the economic technology available to distinguish anticompetitive single firm conduct from pro-competitive conduct, and the asymmetrical costs of errors.  The fundamental point is that rules that are responsive to error-cost concerns are very much concerned with maximizing the rate of return provided consumers to enforcement of antitrust laws. 

While it is true that private enforcement can exacerbate the costs of false positives, and that this aggravation has partially motivated the Supreme Court’s analysis, Leibowitz /Rosch do not fit that observation into the error-cost framework that the Court has adopted.  This fundamental error, and particularly the failure to understand the central role of the difficulty of identifying anticompetitive conduct and distinguishing it from pro-competitive conduct in the development of Section 2 standards, causes the Commissioners to see the strict requirements of Section 2 as raising “technical” obstacles to antitrust claims that do not go to the core of the antitrust mission --- and hence their comfortableness with the gap-filling use of Section 5.

To repeat, the fundamental problem with this approach is that the development of Section 2 in response to error-cost concerns is a feature and not a bug.  Treating Supreme Court antitrust jurisprudence as a mere “bug” that can (or must) be evaded when convenient for the Commission’s policy preferences is neither a coherent nor principled approach to Section 5 in general or with respect to Intel in specific.  The view implicitly adopted by the Commissioners that the antitrust laws are somehow failing if they do not reach “most anticompetitive conduct” simply contradicts the approach taken by the Supreme Court.  The gap between actual Supreme Court interpretation of Section 2 and the Commission’s hypothetical body of antitrust law that would reach all anticompetitive conduct is not one that is accidental or the product of “mere technicality.”   Rather, existing monopolization law has evolved in recent years largely through unanimous decisions in a manner consistent with error-cost analysis.  Indeed, error-cost analysis has become a mainstream tool in antitrust jurisprudence and the economic analysis of law generally.  The interpretation of Section 2 law required to justify the “gap filling” rationale for application of Section 5 to Intel’s conduct is not completely inconsistent with case law, but it also invites the application of Section 5 unhinged from the Section 2 principles entirely.  This, in my view, is a wrongheaded approach that is almost certain to strip away the protections for consumers embedded in the error-cost approach incorporated into Section 2.

Commissioner Rosch’s arguments in favor of Section 5 fail for related reasons.  For example, the view that Commissioner Rosch espouses – that “the oft-repeated admonition that the Sherman and Clayton Acts protect competition, not competitors, and the federal courts’ attendant disinclination to protect competitors in cases brought under those statutes do not fit well” in markets like the microprocessor industry with small numbers of competitors – implicitly rejects the notion that the “oft-repeated admonition” has consumer-welfare protecting value associated with it.  As discussed briefly above and elsewhere at length, this is incorrect.  The difficulty with distinguishing vigorous competition that harms competitors but benefits consumers from truly anticompetitive conduct is at the heart of error-cost analysis designed to harness the power of the antitrust laws to maximize the welfare benefits competition policy generates for consumers.  If Commissioner Rosch truly believes that in markets with only one competitor, harm to that competitor renders harm to competition likely, let the plaintiff prove competitive harm under Section 2.   Instead, the Commission is taking the position that in cases where it is really tough to distinguish harm to competition from harm to individual competitors, we ought to ease the plaintiff’s burden!  This argument turns the first principles of antitrust on their collective head in a manner that makes the attempt to fit this particular application into the traditional uses of Section 5 quite uncomfortable. 

More than anything else, Commissioner Rosch’s argument is an appeal to the European monopolization/abuse of dominant position approach that more readily equates harm to competitors with harm to competition.  The fact that the US system rejects this view is neither accidental nor a mere technicality to be evaded through the novel use of Section 5.  While I’ve focused here on the incompatibility of the Commission’s Section 5 case with established Supreme Court Section 2 jurisprudence, there are other major problems with the Commission’s reinvigoration of Section 5 as the touchstone of monopolization enforcement.  A substantial problem with this approach is that it offers business firms virtually zero clarity with respect to forms of business conduct (including conduct involving discounting, such as Intel’s contracts with OEMs) is permissible.  Of course, this problem is exacerbated by the facts that the Commission has ruled for itself in all 16 of the disputed Sherman Act cases it has brought and that the Commission’s administrative decisions are neither binding on the Commission itself nor great deference by the courts. 

I’ll finish with a prediction.  The FTC will ultimately lose under any elements of the case brought under Section 2.  To the extent that an appropriate interpretation of Section 5 is at least informed by Section 2, the FTC will also ultimately lose on its Section 5 claims (on appeal, of course, not at the Commission). Further, the Section 5 enforcement action will cost consumers (win or lose) in at least two ways.  The first is that Commission will expend significant resources litigating a case with Intel involving conduct that has already been limited by a private settlement, exploiting resources that could be used to tackle other (error-cost justified) problems.  The second is that the Commission’s invocation of (and awkward justification for) Section 5 will result in uncertainty which will chill some pro-competitive conduct, including discounting behavior by firms in high-tech industries and across the economy. 

But most importantly, whatever one thinks about the competitive merits of Intel’s underlying conduct, the Commission’s use of Section 5 should be seen for what it is: an attempt to evade requirements to demonstrate consumer harm under Section 2 that exist to protect consumers from the social costs of false positives.  Such an approach is bound to harm competition and consumers in the long run because it gives the Commission the option to apply its “watered down” standard to whatever business conduct it views as potentially problematic.  This approach is a recipe for Type I error and should be rejected by fans of consumer-welfare based antitrust policy.

The Impact of Mergers on the Degree of Competition in the Banking Industry

Posted by D. Daniel Sokol

Barbara Chizzolini, Bocconi University, Vittoria Cerasi, Milano-Bicocca University - Department of Statistics, and Marc Ivaldi, University of Toulouse 1 - Industrial Economic Institute explain The Impact of Mergers on the Degree of Competition in the Banking Industry.

ABSTRACT: This paper analyses the relation between competition and concentration in the banking sector. The empirical answer is given by testing a monopolistic competition model of bank branching behaviour on individual bank data at county level (départements and provinces) in France and Italy. We propose a measure of the degree of competiveness in each local market that is function also of market structure indicators. We then use the econometric model to evaluate the impact of horizontal mergers among incumbent banks on competition and discuss when, depending on the pre-merger structure of the market and geographic distribution of branches, the merger is anti-competitive. The paper has implications for competition policy as it suggests an applied tool to evaluate the potential anti-competitive impact of mergers.

Predatory Pricing

Posted by D. Daniel Sokol

Aaron Edlin (Berkeley - Law) has a nice overview of Predatory Pricing posted that is his entry in the Research Handbook of Antitrust Economics.

ABSTRACT: Judge Breyer famously worried that aggressive prohibitions of predatory pricing throw away a bird in hand (low prices during the alleged predatory period) for a speculative bird in the bush (preventing higher prices thereafter). Here, I argue that there is no bird in hand because entry cannot be presumed. Moreover, it is plausibly commonplace that post-entry low prices or the threat of low prices has anticompetitive results by reducing entry and keeping prices high pre-entry and post-predation. I analyze three potential standards for identifying predatory pricing. Two are traditional but have been tangled together and must be distinguished. First, a price-cost test based on sacrifice theory requires that either price or cost be measured by what I describe as “inclusive” measures. A price-cost test to prevent the exclusion of equally efficient competitors, by contrast, requires that price and cost be measured by more traditional “exclusive” measures. Finally, I describe a Consumer Betterment Standard for monopolization and consider its application to predatory pricing. I explain finally how these three standards would affect the outcome of and focus of arguments in the American Airlines case, and argue that the Consumer Betterment Standard is a promising alternative to the more traditional tests.

The EC Commission’s Guidance Paper on the Application of Article 82 EC: An Efficient Means of Compliance for Germany?

Posted by D. Daniel Sokol

Anca Daniela Chirita (Europa-Institut, University of Saarland) recently published The EC Commission’s Guidance Paper on the Application of Article 82 EC: An Efficient Means of Compliance for Germany?

ABSTRACT: This article aims to introduce the Guidance Paper’s key features in applying Article 82 EC to abusive exclusionary conduct by dominant undertakings. It will therefore examine the concepts of consumer welfare, anticompetitive foreclosure, consumer harm, the efficiency-based defence and balancing test, and some issues that apply to predation and tying. It will also discuss how the Guidance Paper could be perceived from the perspective of German competition law and policy and what kind of transitional regime might be required for the effective implementation of its major analytical concepts. The central issue is therefore to answer the questions of how efficient it really is to reform Article 82 by means of a soft-law instrument, and whether the GP presents an efficient means of compliance for Germany.

Section 5 FTC Act Blog Symposium Begins Tomorrow

Posted by D. Daniel Sokol

Tomorrow begins our eagerly awaited Section 5 FTC Act Blog Symposium.  To put the symposium in perspective, the case against Intel is the most important unilateral conduct case since the DOJ brought the Microsoft case over a decade ago.  Some questions that I hope that the participants might answer include:

What should the proper scope of Section 5 be?
What have we learned about innovation and dominant firms since Microsoft?
Is bringing such a case worth the potential costs to innovation?

Revising the Merger Guidelines: Looking Back to Move Forward

Posted by D. Daniel Sokol

Deborah Feinstein (Arnold & Porter) suggests Revising the Merger Guidelines: Looking Back to Move Forward.

ABSTRACT: The Federal Trade Commission and Department of Justice have announced plans to consider revising the Horizontal Merger Guidelines “in light of changes in economic learning, the case law, and practice at the Antitrust Division and the FTC.” There can be little doubt that aligning the Guidelines to actual practice and providing greater transparency to parties on the analysis the agencies will use is beneficial. There is, of course, a threshold question as to whether what the agencies have done—and may do differently in the future—is appropriate.

Merger analysis is by necessity forward-looking and it can be difficult to make predictions about the future. In that vein the last question the agencies ask in their list of questions for public comment is “Should the Guidelines be revised to reflect learning based on merger retrospective studies?” In some respects that should be the first question—and the answer should be yes. The agencies should, in some form, examine their analytical approach to determine whether they made accurate predictions and, if not, why not.

Two Watersheds: The New Case Law of Bundles, Rebates and Class Certification

Posted by D. Daniel Sokol

The George Mason Law Review will host a great conference (please register) on

Two Watersheds: The New Case Law of Bundles, Rebates and Class Certification

 

Sponsored by Empiris LLC & O’Melveny & Myers LLP

 

Thursday, February 4, 2010

8:30 a.m. – 12:15 p.m.

Willard InterContinental Washington

The Willard Room

1401 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

 

7:30 a.m.	Registration & Continental Breakfast
8:30 a.m.	Welcoming Remarks
8:45 a.m.	Keynote Address
	Judge Thomas F. Hogan, Senior Judge, U.S. District Court for the District of Columbia (invited)
9:30 a.m.	Panel One | Evaluating Bundling and Share-Based Rebates in High-Tech Industries
	Moderator
	Alden F. Abbott, Deputy Director, Office of International Affairs, U.S. Federal Trade Commission and Adjunct Professor, George Mason University School of Law
	Speakers
	Thomas Brown, Partner, O'Melveny & Myers LLP Nicholas S. Economides, Professor of Economics, New York University Leonard N. Stern School of Business Joseph Kattan, Partner, Gibson, Dunn & Crutcher LLP Kevin M. Murphy, George J. Stigler Distinguished Service Professor of Economics, The University of Chicago Booth School of Business
	Discussant
	Jeffrey A. Eisenach, Chairman & Managing Partner, Empiris LLC and Adjunct Professor, George Mason University School of Law
11:00 a.m.	Panel Two | Class Action in the Wake of Monsanto, IPO and Hydrogen Peroxide
	Speakers
	Eric L. Cramer, Shareholder, Berger & Montague, P.C.
	Ian Simmons, Partner, O'Melveny & Myers LLP
	Discussants
	Hal J. Singer, President & Managing Partner, Empiris LLC and Adjunct Professor, McDonough School of Business, Georgetown University
	Edward Snyder, Dean & George Pratt Shultz Professor of Economics, The University of Chicago Booth School of Business

 

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Contact Information

Laura O'Brien, Symposium Editor

George Mason Law Review

3301 Fairfax Drive

Arlington, Virginia 22201-4498

gmusymposium@gmail.com

Defining the 'Business of Baseball' - A Proposed Framework for Determining the Scope of Professional Baseball's Antitrust Exemption

Posted by D. Daniel Sokol

Nathaniel Grow,  University of Georgia - Department of Insurance, Legal Studies, Real Estate has a paper on Defining the 'Business of Baseball' - A Proposed Framework for Determining the Scope of Professional Baseball's Antitrust Exemption.

ABSTRACT: This article analyzes the scope of professional baseball’s antitrust exemption. Specifically, the article finds that lower courts have applied the exemption in widely divergent ways, due to a misunderstanding, and in some cases a misinterpretation, of the underlying focus of the United States Supreme Court’s opinions first creating and affirming the exemption. The article argues that future courts should reject the existing lower court precedent, and instead, consistent with the focus of the Supreme Court’s decisions, hold that the baseball exemption protects only those activities directly related to the business of providing baseball entertainment to the public.

Competition in the the Agriculture Industry - The Seed Industry

Posted by D. Daniel Sokol

The American Antitrust Institute submitted a paper Transgenic Seed Platforms:Competition Between a Rock and a Hard Place? to the DOJ/USDA joint workshop in which it attacked Monsanto.  Monsanto fired back with a reply on the merits (also noting that DuPont, Monsanto's primary competitor, was a funder of the AAI paper).

One AAI position that seems quite drastic in that it significantly weakens IP rights in the seed context (and has far reaching consequences more generally in IP) was that "compulsory licensing without restrictions is the only approach to ensuring that rivals obtain the access needed to successfully innovate." 

Market Power in U.S. Broadband Services

Posted by D. Daniel Sokol

Thomas W. Hazlett, George Mason University School of Law and Dennis Weisman, Kansas State University - Department of Economics analyze Market Power in U.S. Broadband Services.

ABSTRACT: The U.S. telecommunications industry has come under scrutiny amid concerns that regulatory policies have been too permissive. These concerns are perhaps most prominent in the residential broadband market where there is a perception that the “duopoly” between telephone carriers (DSL suppliers) and cable TV operators (cable modem services) has given rise to anti-competitive behavior. The presence of market power is a testable hypothesis that cannot be deduced solely from market shares or price-cost margins. We develop an economic analysis that incorporates both static and dynamic factors to examine the extant marketplace evidence. The data suggest that “duopoly” broadband providers do not generate supra-competitive returns. Public policies to regulate broadband providers should be informed by these market conditions.

Experience with Direct Settlements in Cartel Cases

Posted by D. Daniel Sokol

The OECD has released its report on Experience with Direct Settlements in Cartel Cases.

Should New Merger Guidelines Give UPP Market Definition?

Posted by D. Daniel Sokol

Richard Schmalensee (MIT Sloan School of Management) asks Should New Merger Guidelines Give UPP Market Definition?

ABSTRACT: In an important recent paper, Joseph Farrell and Carl Shapiro propose a new quantitative approach to assessing the competitive impact of horizontal mergers that does not involve defining a relevant market. I believe that FS have made a significant contribution that has the potential to improve merger enforcement. In what follows I describe their approach, propose a slight modification, and note that, like any purely quantitative technique, it must be used with care and common sense.