Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, April 6, 2010

Cartels Uncovered

Posted by D. Daniel Sokol

Ari Hyytinen, University of Jyvaskyla - School of Business and Economics, Frode Steen, Norwegian School of Economics and Business Administration (NHH) - Department of Economics, and Otto Toivanen, University of Helsinki - Department of Economics have authored Cartels Uncovered with some starteling results.

ABSTRACT: How many cartels are there? The answer is important in assessing the efficiency of competition policy. We present a Hidden Markov Model that answers the question, taking into account that often we do not know whether a cartel exists in an industry or not. Our model identifies key policy parameters from data generated under different competition policy regimes and may be used with time-series or panel data. We take the model to data from a period of legal cartels - Finnish manufacturing industries 1951-1990. Our estimates suggest that by the end of the period, almost all industries were cartelized.

April 6, 2010 | Permalink | Comments (0) | TrackBack (0)

Predatory Pricing: A Proposed Structured Rule of Reason

Posted by D. Daniel Sokol

Abel M. Mateus (UCL Law) has posted Predatory Pricing: A Proposed Structured Rule of Reason.

ABSTRACT: Exclusionary practices are at the heart of abuses of dominance or monopolization. Predatory pricing is one of the most important exclusionary practices, because it lays the foundations of the most important foreclosure theories. Post-Chicago theories of predatory pricing are based on asymmetric imperfect information, imperfections in the capital markets or a race down the learning curve. However, these theories have not yet trickle down to tests in competition law analysis. This paper presents a new structured rule of reason for identifying predatory pricing largely based on finance theory. These are methods currently used in management for deciding investment and market strategies. We show that the Brooke-Akzo tests are a special case of our test. We also define rigorous criteria to judge cases of weakening competitors that could reduce substantially social welfare. Our test carries over trivially to cases of margin squeeze. We thus shed some light on some of the problems confronted by the European Commission and European Courts in the analysis of these cases and how the proposed rule would solve most of them.

April 6, 2010 | Permalink | Comments (0) | TrackBack (0)

Ramirez Sworn in for FTC Commissioner Post

Posted by D. Daniel Sokol

See here.

April 6, 2010 | Permalink | Comments (0) | TrackBack (0)

The Rational Actor Model - It Works

Posted by D. Daniel Sokol

We will be taking a short trip to Disney World (not too far a drive from Gainesville) to celebrate 5 weeks of toilet training by our youngest daughter.  We made the payoff very clear to her.  Being toilet trained meant lunch at the Cinderella Castle.  She responded very well. 

April 6, 2010 | Permalink | Comments (0) | TrackBack (0)

The Second Circuit’s Starr Decision: Why Twombly Demands More

Posted by D. Daniel Sokol

Aaron S. Panner (Kellogg, Huber, Hansen, Todd, Evans, & Figel) argues The Second Circuit’s Starr Decision: Why Twombly Demands More.

ABSTRACT: In Starr v. Sony BMG Music Entertainment,  plaintiffs alleged that Sony BMG, EMI, Universal Music Group, and Warner Music Group—which allegedly "control over 80 percent of Digital Music sold to end purchasers in the United States" --had engaged in a conspiracy to maintain high prices for music sold over the Internet. Before 2007, the defendants might well have declined even to challenge the legal adequacy of that allegation. But, in 2007, the Supreme Court decided Twombly,  which changed the analysis that applies to antitrust conspiracy claims.  The Starr defendants filed a motion to dismiss, arguing that plaintiffs' allegations did not satisfy Twombly. The district court agreed,  but the Second Circuit reversed. The Second Circuit held that the standard developed in the summary judgment context for evaluating the adequacy of circumstantial evidence of a Section 1 conspiracy should not be transposed to the motion-to-dismiss context. But the Second Circuit's decision, by allowing a vague set of factual allegations and an equally vague set of claimed violations to proceed past a motion to dismiss, ignored Twombly's most basic lesson: An antitrust plaintiff, in the absence of any direct claim of agreement, must support a claim of conspiracy with clear factual allegations and persuasive inferences.

April 6, 2010 | Permalink | Comments (0) | TrackBack (0)

Competing Single-Entity Tests in American Needle v. NFL and Their Implications for Sports Leagues and Other Joint Ventures

Posted by D. Daniel Sokol

Gregory J. Pelnar (Compass Lexecon) explains Competing Single-Entity Tests in American Needle v. NFL and Their Implications for Sports Leagues and Other Joint Ventures.

ABSTRACT: American Needle v. National Football League has been variously dubbed the "most important case in sports history," , "an opportunity to reshape sports law,"  "a case that could have far-reaching consequences throughout the law of Sherman Act Section 1,"  and "a case that might fundamentally change professional sports and rewrite sports antitrust law."  The forthcoming U.S. Supreme Court decision in the case could potentially affect not only how sports leagues operate, but also the operation of other joint ventures that have nothing to do with sports, such as payment systems (e.g., Visa, Mastercard) and medical care providers.

The central issue that the Court has been asked to decide is whether the Appeals Court of the Seventh Circuit erred by upholding the district court's finding that the National Football League ("NFL") and its member clubs are a "single-entity" with respect to the collective licensing of club trademarks and logos.  Since, according to the district court, the activities of the NFL and its member clubs occurred within a "single-entity," those activities cannot be an antitrust conspiracy in violation of Section 1 of the Sherman Act because a conspiracy, by definition, requires the participation of more than one entity. As a result, after permitting discovery only on the single-entity issue, the district court granted summary judgment to the NFL, and the Seventh Circuit upheld the decision.

The basic question raised by American Needle is: Are the NFL and its member clubs a single-entity with respect to their trademark licensing activities? In answering this question, an even more basic question is raised: By what criteria can a single-entity be identified? There is profound disagreement on the answer to this question, not only between the litigants, but also among the courts, economists, and legal scholars as well.

April 6, 2010 | Permalink | Comments (0) | TrackBack (0)

Monday, April 5, 2010

Starr v. SONY BMG: Conduct, Context, and the Presumption of Truth

Posted by D. Daniel Sokol

Gary S. Jacobson (Lovell Stewart Halebian Jacobson) discusses Starr v. SONY BMG:  Conduct, Context, and the Presumption of Truth.

ABSTRACT: In Starr v. Sony BMG,  the Second Circuit became the first court of appeals to vacate a district court's judgment which had dismissed a federal antitrust complaint as failing to meet the standards for pleading a Sherman Act conspiracy enunciated in Twombly. The court directed that the case be remanded to the district court, where Plaintiffs may prosecute their allegations that the Defendants, the four major music labels, agreed to fix prices and restrain trade in the market for Internet Music.

While the federal courts continue to wrestle with the issues of the nature and extent of the pleading changes wrought by Twombly, the Starr panel unanimously agreed that Twombly did not elevate the standard on a motion to dismiss Section 1 claims to that for summary judgment. The court further held that the complaint made adequate allegations not only of parallel conduct but also of "further circumstances" sufficient to make plausible the suggestion that the Defendants' alleged conduct was undertaken pursuant to an agreement to restrain trade, rather than independently by each firm.

April 5, 2010 | Permalink | Comments (0) | TrackBack (0)

Antitrust Implications of the Supreme Court’s 2009-2010 Docket

Posted by D. Daniel Sokol

Tom Rosch (FTC) explains the Antitrust Implications of the Supreme Court’s 2009-2010 Docket in a speech he gave at the Association of Corporate Counsel Antitrust Program in Richmond, Virginia on March 31, 2010.

ABSTRACT: The Supreme Court was expected to hand down three decisions this Term with implications for antitrust enforcement. To be sure, only one of the cases, American Needle v. NFL, involves the Court’s interpretation of a federal antitrust statute. But the other two cases – Jones v. Harris, a securities case and Bilski v. Kappos, an intellectual property case – may have broader ramifications than some may realize.

April 5, 2010 | Permalink | Comments (0) | TrackBack (0)

Joint Ventures and the Sherman Act: The Problem Revealed by American Needle and How Best to Address It

Posted by D. Daniel Sokol

Thomas Brown, Katherine Robison, & Ian Simmons (O'Melveny & Myers) explain Joint Ventures and the Sherman Act: The Problem Revealed by American Needle and How Best to Address It.

ABSTRACT:

The transcript of the oral argument in this year's most watched antitrust case, American Needle v. National Football League, captures a struggle about where to draw the line between joint venture activities that must be scrutinized under Section One and those that should not. That the Justices of the Supreme Court seemed uncertain about how to draw such a line while preserving the ability to review the activities of joint ventures under Section One is not surprising given the current state of antitrust law applicable to joint ventures.

Antitrust law holds joint ventures to an exacting standard. Joint ventures are required to defend their formation and their actions under Section One of the Sherman Act. Although pricing decisions of an integrated joint venture may not be subject to per se condemnation, all the actions of such a joint venture are, according to mainstream antitrust authorities, subject to scrutiny under Section One.

Antitrust law does not hold other collaborative enterprises to a similar standard. It does not demand that other legitimate cooperative forms of business (such as merged companies or parent and subsidiary corporations) justify each of their post-formation activities. And, although subjecting joint ventures to a more exacting antitrust standard can be reconciled with the text and structure of the Sherman Act, it makes no sense to predicate the level of scrutiny applied on the form of the cooperative venture. At a practical level, this formalism simply encourages firms to by-pass potential opportunities or to pursue them within a more rigid structure.

The solution lies in pursuing a less ambitious agenda for joint venture review. If joint ventures are akin to merged companies, then antitrust review of their activities should more closely follow the law applicable to mergers. As with proposed mergers, the government and private parties should be allowed to challenge the joint venture upon formation to determine whether the joint venture may properly pursue the activities falling within its proposed scope. And if the joint venture were later to expand its scope, activities falling within that revised scope would be analyzed under the same standards that apply at formation. But, once the scope of the venture has been defined, activities falling within that scope cannot be singled out for challenges under Section One. Those activities must be challenged, if at all, under Section Two. Of course, activities falling outside the original scope of the joint venture may still be challenged under Section One.

By stepping back from the overambitious antitrust agenda currently applied to joint ventures, the courts can create the clarity needed to allow joint ventures to fulfill the promise recognized in Copperweld--"increasing a firm's efficiency and enabling it to compete more effectively."

April 5, 2010 | Permalink | Comments (0) | TrackBack (0)

Dimensions of Competition Policy and Law in Emerging Economies

Posted by D. Daniel Sokol

CUTS has a new paper on Dimensions of Competition Policy and Law in Emerging Economies.

ABSTRACT: Emerging economies are characterised by fast transformation and rapid economic growth. Competition law and policy should help these economies enhance their growth prospects by promoting efficiency in resource allocation and production and enhance consumer welfare. However, the pursuit of competition policy in emerging economies is complicated by the need to achieve economies of scale through an industrial policy and the needs of the developing world to tackle the economic might of the developed world, through inter-country cooperation. This paper shows that a happy compromise between competition and industrial policy and efforts to stimulate co-operation is not only desirable but possible. Some of the methods recommended here include selective and varying sectoral emphasis on competition policy as well as exemptions and exclusions in its application. The development experiences of present day developed countries such as Japan and Korea and emerging China are analysed to yield useful lessons in this regard. The paper identifies inadequate awareness and lack of competition culture as stumbling blocks to the successful adoption of competition policy and law by emerging economies. It, therefore, urges gradualism in adoption of competition reforms and calls for efforts in competition advocacy and education which are in sync with the pace of reform. The paper also goes on to clarify implementation modalities, such as the shaping of the content of competition policy and law and the empowerment of competition authorities needed for effective implementation of the competition law.

April 5, 2010 | Permalink | Comments (0) | TrackBack (0)

Monopolist as Victim: Constitutional Rights in Antitrust Part II

Posted by D. Daniel Sokol

Adi Ayal (Bar Ilan Law) explores Monopolist as Victim: Constitutional Rights in Antitrust Part II.

ABSTRACT: Constitutional law dictates that when one person's use of property infringes upon another's, a balancing test be administered to examine whether state action is justified. The case at point here is that of a monopolist arguing for freedom of trade and right to property infringed upon by state action purporting to protect consumers. The question addressed is whether a monopolist as such is to be deprived such consideration, and what arguments such a monopolist might bring forth.


The setting is Israeli constitutional law, specifically two relatively new Basic Laws expressly guaranteeing the right to free determination of property and the right to freedom of occupation. I show that a monopolist would have firm ground on which to stand when arguing the Restrictive Trade Practices Law may violate constitutional standards and subsequently should be constrained by expressly allowed judicial review.

April 5, 2010 | Permalink | Comments (0) | TrackBack (0)