Antitrust & Competition Policy Blog

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

Saturday, December 18, 2010

Director Disqualification as a Complement to EU Antitrust Fines: Towards a More Balanced Sanctions Policy

Posted by D. Daniel Sokol

Mark Powell & Grant McKelvey (White & Case) discuss Director Disqualification as a Complement to EU Antitrust Fines: Towards a More Balanced Sanctions Policy.

ABSTRACT: There is an intense debate in competition law circles about the seemingly high level of fines levied by the European Commission on companies found guilty of EU competition law violations (notably compared with unduly modest sanctions imposed in other areas of law, such as insider trading, money laundering, misleading financial information, or environmental disasters). There is concern in many quarters not only that the Commission's policy of corporate punishment is an ineffective means of deterrence (after all, cartels keep forming despite increasingly high fines), but that handicapping European companies-the primary victims of the current policy-with headline-grabbing fines is hardly in tune with the Europe 2020 Strategy, which is designed to boost, not weaken, European industry. Recent research shows that on at least three occasions in the last 10 years, DG COMP has refused a request for inability-to-pay relief just weeks or months before the company requesting it was declared bankrupt. It seems that in all three cases the Commission ended up recovering none of the fines imposed. True, these are extreme cases, but the dangers associated with a single-track punishment mechanism are becoming evident in light of the current economic malaise. It is time to reconsider the current policy, to follow the lead set by other ECN members, and to search for a more sophisticated toolbox-designed to deter individuals, but not to put companies, jobs, and investment at risk.

This article tackles three issues.

  • First, it reviews the indirect consequences of the fine and questions whether the turnover-based 2006 Fining Guidelines have ever been the subject of an economic impact assessment-a pre-condition for pursuing any European policy initiative today.
  • Second, it sets out some ideas how an EU-wide system of director disqualification could be put in place as a complement to the current fining policy.
  • Third, it explains the mechanics of putting in place and running such a system.

This brief article does not purport to hold all of the solutions, but would hope to stimulate a debate on how best to upgrade the current system of deterrence.

December 18, 2010 | Permalink | Comments (0) | TrackBack (0)

Friday, December 17, 2010

The Inefficiency of Market Transparency – A Model with Endogenous Entry

Posted by D. Daniel Sokol

Yiquan Gu and Burkhard Hehenkamp explain The Inefficiency of Market Transparency – A Model with Endogenous Entry.

ABSTRACT: Including the entry decision in a Bertrand model with imperfectly informed consumers, we introduce a trade-off at the level of social welfare. On the one hand, market transparency is beneficial when the number of firms is exogenously given. On the other, a higher degree of market transparency implies lower profits and hence makes it less attractive to enter the market in the first place. It turns out that the second effect dominates: too much market transparency has a detrimental effect on consumer surplus and on social welfare. 

December 17, 2010 | Permalink | Comments (0) | TrackBack (0)

Multimarket Contact in Vertically Related Markets

Posted by D. Daniel Sokol

Talat S. Genc (Department of Economics,University of Guelph) and Sencer Ecer (Department of Economics, Istanbul Technical University) describe Multimarket Contact in Vertically Related Markets.

ABSTRACT: We analyze collusion in two comparable market structures. In the first market structure only one firm is vertically integrated; there is one more independent firm in the upstream industry and another independent firm in the downstream industry. In the second market structure, there are only two vertically integrated firms that can trade among themselves in the intermediate good market. The second market structure mimics markets like the California gasoline market where firms vertically integrated through refinery, and retail markets. We rank these two market structures in terms of ease of collusion and show that while under some circumstances collusion is not possible in the market with one vertically integrated firm, collusion is possible in the market structure with two vertically integrated firms. We conclude that vertical (multimarket) contact facilitates collusion and vertical mergers suspected to lead to subsequent! vertical mergers in an industry should receive higher antitrust scrutiny relative to single isolated vertical mergers.

December 17, 2010 | Permalink | Comments (0) | TrackBack (0)

Quality and welfare in a mixed duopoly with regulated prices: The case of a public and a private hospital

Posted by D. Daniel Sokol

Annika Herr (Dusseldorf Institute for Competition Economicsyand Universitat Erlangen-Nurnberg and Ruhr Graduate School in Economics) writes on Quality and welfare in a mixed duopoly with regulated prices: The case of a public and a private hospital.

ABSTRACT: Hospital markets are often characterised by price regulation and the existence of different ownership types. Using a Hotelling framework, this paper analyses the effect of heterogeneous objectives of the hospitals on quality differentiation, profits, and overall welfare in a price regulated duopoly with exogenous symmetric locations. In contrast to other studies on mixed duopolies, this paper shows that in this framework privatisation of the public hospital may increase overall welfare. This holds if the public hospital is similar to the private hospital or less efficient and competition is low. The main driving force is the single regulated price which induces under-(over-)provision of quality of the more (less) efficient hospital compared to the first-best. However, if the public hospital is sufficiently more efficient and competition is fierce, a mixed duopoly outperforms both a private and a public duopoly due to an ! equilibrium price below (above) the price of the private (public) duopoly. This medium price discourages overprovision of quality of the less efficient hospital and - together with the non-profit objective - encourages an increase in quality of the more efficient public hospital.

December 17, 2010 | Permalink | Comments (0) | TrackBack (0)

Thursday, December 16, 2010

Twenty Years After: The Future of Competition Enforcement in the European Union

Posted by D. Daniel Sokol

Rennato Nazzini (Univ. of Southampton School of Law) addresses Twenty Years After: The Future of Competition Enforcement in the European Union.

ABSTRACT: Any prediction on where Union competition law enforcement will be in 20 years time must start by taking stock of the progress so far, or the lack thereof. Nor can an attempt at such a prediction be limited to the realm of procedure. Substantive law is as important to enforcement as procedure. In particular, the type of rule that prevails-to simplify, object, effect or, in U.S. terminology, per se rules or rule of reason-is a crucial determinant of the level and style of enforcement at a given time.

The drafters of the Treaty of Rome of 1957 did not have a clear idea of the goals of European competition law. Nor did they give much thought to the enforcement regime best suited to it. They had, however, the fundamental intuition that a common market (now the internal market) without competition would be not only futile but, almost, a contradiction in terms. And the common market was necessary for the very survival of post-war Europe as a competitive world economy and for the well-being of its peoples. As for the enforcement mechanism, the drafters chose, almost by default, the only model that was obviously available to their common legal traditions: enforcement was entrusted to a strong administrative body-now the European Commission-subject to the scrutiny of the courts. And according to the French tradition of administrative law-which an analysis of the original text of the Articles of the Treaty dealing with judicial review suggests must have been the most influential precedent-judicial scrutiny was to be respectful of the degree of discretion that the executive has in making the decisions entrusted to it.

For a while, this system worked reasonably well. A powerful-even though at times overcautious-DG IV (now DG Competition or DG Comp) was given the monopoly over the granting of exemptions, based broadly on efficiency considerations, for restrictive agreements that were duly notified to it. This gave DG IV the opportunity to shape a competition law on agreements with the overarching objective of ensuring the well-functioning of the internal market. The European judiciary endorsed this approach and contributed to its development. The result was a competition policy not dogmatically enslaved to short-term welfare analysis but focused on the development of the market in the long-term by preserving pluralistic, open, and dynamic market structures. European competition law is not, and never was, purely a market-integrationist tool although it cannot be explained without the internal market objective.

The internal market is not only one of the goals of European competition law. It is also the premise on which an efficient, competitive, and sustainable European economy is predicated. This economic model requires an effective competition law in order to function. Thus, competition law has a dual role: fostering the creation of the internal market and ensuring its well-functioning. In this way, competition law benefits the peoples of Europe: not only consumers, but also employees, and shareholders.

The market-integrationist agenda did mean, however, that European competition law was concerned about vertical restraints to an extent that is perhaps inexplicable otherwise. The strict prohibition of resale price maintenance ("RPM") and absolute territorial protection ("ATP"), which has been retained in the new and slightly improved version of the Block Exemption for Vertical Agreements and the Vertical Guidelines, is the prime example of this approach. But one must not forget the somewhat regulatory approach to distributional practices that still pervades European competition law in other areas; for instance, in the "regulation" of aftermarkets in the motor vehicle sector.

On the other hand, one must also not forget the huge steps forward that European competition law has made in the past two decades or so. In 1989, the first merger regulation was adopted, based on the one-stop-shop principle for mergers having a European dimension. In 2004, a new merger regulation introduced a test that was supposed to be less structuralist than the previous one. Complemented by a set of guidelines inspired by a mix of sound pragmatism and modern economic thinking, the merger regime is by and large working reasonably well.

In 2003, a new procedural regulation abolished the Commission's monopoly on the granting of exemptions for restrictive agreements that also produced efficiencies. Undertakings are now required to assess their agreements by themselves. Furthermore, the new regulation introduced a system in which the Commission and the national competition authorities of the Member States all share the power and the duty to apply and enforce the European competition rules in a coordinated fashion.

Finally, in the past ten years or so, the fight against cartels has been taken to a new level, with fines much higher than they used to be and ever improving leniency programs to help destabilize and detect secret cartels.

Against this background of changes and what also what many critics would call at least moderate success, what are the developments to be expected over the next 10 to 15 years? What will European competition enforcement look like 20 years after? The challenges ahead can be broadly divided into three headings: 1) the substantive legal framework; 2) sanctions and procedure; 3) globalization.

December 16, 2010 | Permalink | Comments (0) | TrackBack (0)

The Effects of Increased Competition in a Vertically Separated Railway Market

Posted by D. Daniel Sokol

Markus Lang, Marc Laperrouza, and Matthias Finger (all Swiss Economics SE AG) discuss The Effects of Increased Competition in a Vertically Separated Railway Market.

ABSTRACT: This paper presents a game-theoretic model of a liberalized railway market, in which train operation and ownership of infrastructure are vertically separated. We analyze how the regulatory agency will optimally set the charges that operators have to pay to the infrastructure manager for access to the tracks and how these charges change with increased competition in the railway market. Our analysis shows that an increased number of competitors in the freight and/or passenger segment reduces prices per kilometer and increases total output in train kilometers. The regulatory agency reacts to more competition with a reduction in access charges in the corresponding segment. Consumers benefit through lower prices, while the effect on the operators' profits is ambiguous and depends on the degree of competition. We further show that social welfare always increases through more competition in the freight and/or passenger segment.! Finally, social welfare is higher under two-part tariffs than under one-part tariffs if raising public funds is costly to society.

December 16, 2010 | Permalink | Comments (0) | TrackBack (0)

Detecting Market Power Along Food Supply Chains: Evidence From the Fluid Milk Sector in Italy

Posted by D. Daniel Sokol

Cavicchioli D., Università degli Studi di Milano, Department of Agricultural Food and Environmental Economics an Policy explains Detecting Market Power Along Food Supply Chains: Evidence From the Fluid Milk Sector in Italy.

ABSTRACT: This paper applies to Italian milk supply chain a theoretically grounded methodology able to detect for the presence of market power along the supply chain itself using easily available data. The model, developed by Lloyd et al. brings to estimate a quasi-reduced form equation in which consumer price is regressed against producer price, marketing costs and demand and supply shifters. When market power is exerted along the supply chain both of the shifters are statistically significant and signed accordingly to model prescriptions, while with perfect competition none of the shifters is significant. 29 time series have been used in the analysis, within three different dataset covering partially or totally overlapped time periods. Variables having the same order of integration have been used within an Error Correction Model framework. Among all the variables having one cointegrating vector, only those with statistically sig! nificant parameters and signed according to model prescriptions have brought to conclusive results, detecting market power exertion along the Italian milk supply chain during two over the three periods examined. The present methodology may be useful in competition policy analysis as a preliminary âfastâ test on food supply chain conduct. For this purpose theoretical model validation is however necessary using Monte Carlo simulations. In this line, further improvements relates to explicitly modeling food processing-retailing relationships in order to detect for market power on each segment of the supply chain.

December 16, 2010 | Permalink | Comments (0) | TrackBack (0)

First filter test of market power in Finnish food retailing sector

Posted by D. Daniel Sokol

Niemi Jyrki and Xing Liu (both MTT Agrifood Research Finland) describe First filter test of market power in Finnish food retailing sector.

ABSTRACT: Buyer power and competition policy in food supply chains has emerged as an important economic issue and a highly sensitive item on the policy agenda all around the world. Claims that large retailers and food companies are depressing farm prices because of their market power have been made in many countries around the world (Swinnen and Vandeplas, 2009). Arising concentration of retailer sector increases the concern of existence and gradual growth of buyer power in this sector. The key reason is that the growing buyer power may have the effect of considerably distorting both retail and producer competition, and eventually it may damage economic welfare. In Finland, the increased concentration of the retail sector, with fewer outlets and the growth of the large supermarket chains, has been particularly fast. The two leading Finnish retail chains of food and daily goods increased their market share from 55 per cent in 1990 ! to nearly 75 per cent in 2008 (Niemi and Ahlstedt 2009).. The purpose of this paper is to investigate the possible existence of buyer power in Finnish food retail food industry. In details, we follow an approach used by Lloyd et al (2009) to measures oligopoly and oligopsony market power in the Finnish food retail industry. This offers a âfirst-filterâ test of price data that may be used as part of the preliminary analyses into the presence of buyer power in food markets. In practice, we apply a vector error correction mechanism (VECM) to perform two-stage tests: First is to test the hypothesis of cointegration between the supply and demand price indices with expected signs for the coefficients irrespective of the degree of retail competition; second is to test the null hypothesis of the perfect competition. The model also serves as a useful device for characterising how prices are transmitted in food market, albeit in simplified form.

December 16, 2010 | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 15, 2010

Bank Competition and Stability: Reconciling Conflicting Empirical Evidence

Posted by D. Daniel Sokol

Thorsten Beck, Professor, CentER, European Banking Center, Tilburg University, Olivier De Jonghe, Tilburg University - Department of Finance, Tilburg University - European Banking Center, and Glenn Schepens, Ghent University - Department of Financial Economics address Bank Competition and Stability: Reconciling Conflicting Empirical Evidence.

ABSTRACT: Theoretical models and empirical results offer conflicting evidence on the relationship between bank competition and bank stability. This paper aims to reconcile the seemingly contrasting evidence on the bank competition-bank soundness relationship. We develop a unified framework to assess how regulation, supervision and other institutional factors may make it more likely that the data favor one theory over the other (charter value paradigm versus risk-shifting paradigm). Cross-country heterogeneity in these factors allows us to test the assumptions and predictions of various theoretical models. We show that an increase in competition will have a larger impact on banks' risk taking incentives in countries with stricter activity restrictions, more herding in revenue structure and unconcentrated banking markets.

December 15, 2010 | Permalink | Comments (0) | TrackBack (0)

Recent Changes in the Regulation of Motor Vehicle Distribution in Europe – Questioning the Logic of Sector-Specific Rules for the Car Industry

Posted by D. Daniel Sokol

Sandra Colino discusses Recent Changes in the Regulation of Motor Vehicle Distribution in Europe – Questioning the Logic of Sector-Specific Rules for the Car Industry.

ABSTRACT: A new block exemption regulation for motor vehicle distribution agreements was adopted in May 2010. Regulation 461/2010 extends the application of Regulation 1400/2002 – the first ‘new style’ block exemption for the car sector – for three years regarding the distribution of new motor vehicles. After that period, the sector will finally fall within the scope of the general block exemption for vertical agreements - Regulation 330/2010. At the same time, Regulation 461/2010 contains a list of hardcore restrictions applicable to the car aftermarket. It is accompanied by a set of sector-specific supplementary guidelines. As Regulation 1400/2002 is progressively replaced, the momentum calls for an assessment of its achievements and the merits of the changes envisaged. The Commission appears to finally acknowledge that the maintenance of specific rules for the car sector is of questionable necessity, and opts to gradually include the sector in the general block exemption regulation for vertical agreements. Such a welcome change should doubtlessly bring coherence to an exemption system divided by the existence of a specific car industry regime for the past fifteen years. Unfortunately, a closer look at the modifications rapidly mitigates the initial enthusiasm, particularly since the Commission has opted to maintain specific rules for the aftermarket, and has delayed the inclusion of the sector in the general regime for vertical agreements. Whilst it is too early to assess the merits of the forthcoming amendments, this paper questions the practical effectiveness of the Commission’s most recent reform, and argues that a precious opportunity to unify the curious divide between distribution agreements in the car sector and all other industries may have – yet again – been squandered.

December 15, 2010 | Permalink | Comments (0) | TrackBack (0)

Judicial Review in European Union Competition Law: A Quantitative and Qualitative Assessment

Posted by D. Daniel Sokol

Damien Geradin, Tilburg University - Tilburg Law and Economics Center (TILEC), University of Michigan Law School and Nicolas Petit, University of Liege have an interestibng new paper on Judicial Review in European Union Competition Law: A Quantitative and Qualitative Assessment.

ABSTRACT: Ever since the creation of the General Court (“GC”), the effectiveness of judicial review in European Union (“EU”) competition cases has sparked intense scholarly debates.

This paper seeks to further contribute to this discussion in three ways. First, it devotes some space to fundamental, yet often overlooked questions, such as the goals or functions of judicial review and why judicial review of administrative decisions is important; particularly so in competition law matters. Second, this paper attempts to throw some empirical light on the GC’s judicial review of European Commission ("Commission") decisions in the field of competition law. Third, it places a specific emphasis on the particular situation of abuse of dominance law, where the GC has exercised its judicial review power with more restraint than in other areas of competition law (such as restrictive agreements and mergers).

With these goals in mind, this paper follows a five-stage progression. First, on the basis of a survey of the relevant legal, economic and political science literature, it defines the functions of judicial review and identifies a set of indicators which can be used to assess the performance of the GC’s judicial scrutiny (Part I). Second, it explains why judicial review in EU competition law cases is of critical importance notably given the institutional and procedural deficiencies of the EU enforcement structure (Part II). Third, it discusses the nature and standard of review currently applied by the GC with a particular focus on the degree to which the GC is willing to review “complex economic matters” (Part III). Fourth, it provides some quantitative data on the case-law of the GC to assess whether several goals or functions attributed to judicial review by the scientific literature are met (Part IV).

Finally, this paper takes a closer look at the (controversial) case-law of the GC in the field of Article 102 of the Treaty on the Functioning of the European Union (“TFEU”) (Part V). It observes that while the GC has taken initiatives to modernize normative legal standards in the fields of Article 101 of the Treaty on the Functioning of the European Union (“TFEU”) and merger control, it has taken a conservative approach with respect to Article 102 TFEU where it has essentially relied on the formalistic case-law of the ECJ on exclusionary behaviour. In our view, this explains in large part why over the past decade, undertakings challenging Commission decisions have never been successful. The issue is not so much that the GC has turned a blind eye on the Commission’s abuse of dominance position decisions (although it may also be part of the problem), but that the normative legal standards that are used to determine whether dominant firm conduct infringes Article 102 TFEU are so unfavorable to dominant firms and give so much discretion to the Commission that it is almost impossible for such firms to have infringement decisions overturned. Unless these standards evolve, there is a considerable risk that benign dominant firm conduct will be prohibited. These standards will also act as an impediment to economics- or effects-based oriented reforms, such as those initiated by the Commission in its Guidance Paper on Article 102 TFEU.

December 15, 2010 | Permalink | Comments (0) | TrackBack (0)

European Antitrust in 2025: A Strangely Familiar Picture

Posted by D. Daniel Sokol

Robert McLeod (MLex) describes European Antitrust in 2025: A Strangely Familiar Picture.

ABSTRACT:  European antitrust in 2025 will be a strangely familiar place even as a revolution of private enforcement changes the way regulators, industry, and the judiciary interact.

In order to envisage what the competition world will look like, it is necessary to make a number of assumptions:

1.     Cartel detection by regulators will decline significantly as the deep well of industrial cartel behavior dating back to the 1970s dries up and the inherent contradictions exposed in the leniency program become more apparent.

2.     Private enforcement and damages actions will succeed in establishing themselves as viable alternatives to regulator enforcement and punishment. This will not be a result of regulation but rather a market-led revolution.

3.     Reform of the court system in Europe will have an enormous impact on the enforcement of antitrust rules in Europe and reduce the requirement for fundamental change to the way antitrust decisions are taken by the European Commission.

December 15, 2010 | Permalink | Comments (0) | TrackBack (0)

Hedging Policies, Incentives and Market Power

Posted by D. Daniel Sokol

David De Angelis, Cornell University - Samuel Curtis Johnson Graduate School of Management and S. Abraham Ravid, University of Chicago - Booth School of Business, Rutgers University - Department of Finance & Economics discuss Hedging Policies, Incentives and Market Power.

ABSTRACT: This paper studies potential adverse incentive effects of hedging policies in non-competitive product markets. We develop an illustrative model which shows that for firms with market power, output hedging creates detrimental incentives, which are not present in competitive markets. This adds to the cost of hedging. Thus we expect firms with market power in non-competitive environments to be less inclined to hedge outputs. We test this prediction on a sample of S&P500 firms from 2001 to 2005. Consistent with our model, we find that firms with market power tend not to hedge output commodity risk, while they tend to hedge input commodity risk. These results are robust to various econometric specifications and also robust when considering currency hedging. We also find support for some "traditional" variables which predict the tendency to hedge.

December 15, 2010 | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 14, 2010

EC adopts new competition law guidelines on cooperation between competitors

Posted by D. Daniel Sokol

My friend Steve Cernak emails the following update:

First link below is to press release.  Second link is to the 94 page set of guidelines in English.  The press release says the guidelines provide a framework for analysis of most horizontal cooperation and include a new chapter on information exchange and a revised chapter on standardization agreements.  Two block exemptions related to specialization and R&D agreements were also adopted.

December 14, 2010 | Permalink | Comments (0) | TrackBack (0)

European Commission Cartel Prosecutions and Fines, 1998-2006 - An Updated Statistical Analysis of Fines under the 1998 Penalty Guidelines

Posted by D. Daniel Sokol

Cento Veljanovski - Case Associates; Institute of Economic Affairs; Centre for Regulation and Market Analysis has prepared the impressive European Commission Cartel Prosecutions and Fines, 1998-2006 - An Updated Statistical Analysis of Fines under the 1998 Penalty Guidelines.  This must have been a real labor of love to collect.

ABSTRACT: This paper brings up to date an on-going statistical analysis of the fines imposed in cartel prosecutions commenced between 1998 and 2006 by the European Commission and courts on appeal under the 1998 Penalty Guidelines and completed to the end of October 2010. Based on an analysis of all 46 fully reported cartel decisions (which represent all the cartels prosecuted under the 1998 Penalty Guidelines) involving 63 cartels and 355 firms, the report examines how fines were calculated in practice under the guidelines, leniency notices, and adjusted by the European courts on appeal. This update includes additional analysis of the structure of fines, recidivism, appeals, and the duration of the European Commission's investigations.

Among the main findings are that:

  • Firms were fined considerably less than provided for under the guidelines The average fine per firm fell significantly between 2007 and 2010
  • Repeat offenders were let off lightly, with some being fined as little as 10% per additional prior offence.
  • Repeat offenders benefited disproportionately from the Commission's leniency policy, and many are appealing their fines.
  • The published decisions redact an excessive amount of information on the fining process.

December 14, 2010 | Permalink | Comments (0) | TrackBack (0)

EU Competition Law and Policy in 2025: Modernization-Mission Accomplished?

Posted by D. Daniel Sokol

Assimakis Komninos (Hellenic Competition Commission) asks EU Competition Law and Policy in 2025: Modernization-Mission Accomplished?

ABSTRACT: Competition law futurology can be risky. But perhaps not so risky, if we are talking about EU competition law and policy. While competition policy is utterly connected with economic policy and the latter may inevitably change in a given jurisdiction further to political, social, and ideological shifts, the fact that EU competition policy is not national but supranational makes predictions slightly less adventurous. The European Union will remain a dynamic supranational entity, thus being sheltered from political paradigm shifts which are more likely to affect-at least in a dramatic way-specific Member States than a Union of twenty-seven or thirty-something states. At the same time, EU competition law and policy has been blessed with the existence of strong institutions at the center, which determine, enforce, and adjudicate the applicable rules.

In the last years, EU competition law enforcement has known profound changes both in substance and in procedure. These changes are described as "the modernization" of EU competition law. The great drive for modernization started in 1996 with the publication of the Green Paper on vertical restraints, which brought into European antitrust enforcement a more economic approach. This more economic approach was not limited to vertical agreements but was introduced across the board in Article 101 TFEU. The new generation of block exemption regulations and the adoption of guidelines for specific categories of agreements, as well as in the context of the general framework of Article 101 TFEU, were a success. These developments were then followed by an equally brave-albeit a bit more painful-wave of modernization in Article 102 TFEU. Recently, the Commission adopted a new Block Exemption Regulation and Guidelines for vertical restraints and the same will happen before Christmas for horizontal agreements.

Does this all mean the "end of history" in the modernization of EU competition law? Not really. I offer below some predictions and suggestions as to how modernization might evolve in the next fifteen years.

December 14, 2010 | Permalink | Comments (0) | TrackBack (0)

Retailer's Market Power and the Optimal Channel Strategies of a Manufacturer In Electronic Commerce

Posted by D. Daniel Sokol

Jae-Cheol Kim, KAIST Graduate School of Management and Se Hak Chun, Seoul National University of Technology address Retailer's Market Power and the Optimal Channel Strategies of a Manufacturer In Electronic Commerce.

ABSTRACT: Even though many manufacturers today are increasingly adopting dual channels to sell their products through their traditional retail channels and their own direct on-line channels, there are still few theoretical studies on manufacturers' optimal channel management strategies and pricing strategies in electronic commerce. Previous studies tend to rely on simulation approaches or empirical approaches and their methods are not sufficient to draw equilibrium prices for a dual-channel supply chain design. As well, previous studies on channel management have tried to analyze a manufacturer's channel management strategy from the perspective of channel con‡ict between a manufacturer and a retailer; thus, they tend to focus on pricing strategies of the manufacturer and start from an assumption that there are both offline and online channels initially.

This paper begins by asking a question why both channels exist at the same time. We are particularily interested in a manufacturer's optimal channel strategies when a manufacturer sells its products through both a retail channel and its direct online channel. Then, under what conditions do both a traditional retailer and a vertically integrated direct channel coexist or when does a manufacturer use a traditional channel only? Also, when may a manufacturer dispense with an existing retailer and use a direct online channel only?

We investigate these questions from the perspective of customer choice behavior considering several factors, including the degree of the consumer's online convenience and the degree of customer heterogeneity between a traditional retail channel and on-line channel. We discuss how these are related to a manufacturer's channel strategies and pricing strategies in an electronic market enviroment. In particular, we consider the retailer's market power (or competitiveness in a retail market), which have been rarely considered in previous studies. We discuss the channel con‡ict issue from a different view of the retailer's market power. Traditional approaches have focused on the fact that offline markets are larger than online, so the retailer has more bargaining power. Our perspective also considers the opposite point of view. In particular, we examine how this retailer's market power is related to a manufacturer's channel strategy, pricing strategy, strategic behaviors and channel con‡ict. We also discuss strategic implications on the market player's behavior when a manufacturer adds a direct online channel.

December 14, 2010 | Permalink | Comments (0) | TrackBack (0)

Competition Law and Corporate Accountability

Posted by D. Daniel Sokol

Phillip Collins (OFT) has given a speech on Competition Law and Corporate Accountability.  It is worth a read.

December 14, 2010 | Permalink | Comments (0) | TrackBack (0)

Excessive Pricing and the Goals of Competition Law - An Enforcement Perspective

Posted by D. Daniel Sokol

Jörg Philipp Terhechte, University of Hamburg explores Excessive Pricing and the Goals of Competition Law - An Enforcement Perspective.

ABSTRACT: The reanimated debate about the regulation or control of exploitative prices by competition authorities can demonstrate, inter alia, that the phenomenon of divergence of substantive standards and even of different goals of national and supranational competition or antitrust laws is often not about real divergence, but increasingly about felt divergence.I totally agree with the idea that the felt divergence between U.S. and European approaches in the field of excessive pricing could be overstated if one starts to broaden the perspective: Even in case a selected competition jurisdiction denies the necessity for a regulation of monopoly profits, as the U.S. does in principle, a deeper analysis of the whole regulatory environment of this jurisdiction will unearth a multitude of sectoral pricing rules which are in many cases not enforced by competition authorities, but by special regulatory agencies instead. Thus, trust in the market or the idea that excessive pricing might be self-correcting4 is restricted from the outset as many important markets all over the world are subject to special (price-) regulation.

December 14, 2010 | Permalink | Comments (0) | TrackBack (0)

The Impact of Regulation 1/2003 in the New Member States

Posted by D. Daniel Sokol

Kati Cseres, University of Amsterdam - Amsterdam Center for Law & Economics discusses The Impact of Regulation 1/2003 in the New Member States.

ABSTRACT: Regulation 1/2003 entered into force on 1 May 2004 introducing a fundamental change in the enforcement of Articles 101 and 102 TFEU. 1 May 2004 also marked a fundamental change in the history of the EU: ten new Member States joined the European Union. The modernization of EC competition law enforcement has in fact taken place against the background of enlargement. Enlargement and the modernization of law enforcement had been closely connected to one and other not only in the field of competition law. This paper discusses the impact of Regulation 1/2003 in the ten new Member States situated in Central and Eastern Europe that joined the EU in 2004 and 2007. What makes these Central and Eastern European countries (CEECs) special is transition from command and control economy and totalitarian rule to market economy and to compliance with the rule of law. What makes implementation of EU rules in CEECs’ legislation special is the conditionality and the fact that Europeanization of these countries’ laws have been interacting with market, constitutional and institutional reforms. The paper discusses both the direct and indirect impact of Regulation 1/2003 in the legislation, enforcement models and institutional designs in these countries. The experience of the CEECs indicate that EU leverage has been the most noticeable and direct on the statutory enactments of substantive competition law, however, it has in an indirect way also influenced enforcement methods and institutional choices. The exceptional influence of the EU on the CEECs’ competition rules can be demonstrated by the fact that these countries often aligned their national laws even further than they were obliged to. However, in the less visible parts of the law such as procedural rules divergence can be substantial with important consequences for overall enforcement outcomes. Moreover, in the CEECs there is a significant difference between the black letter of the law and its active enforcement.

December 14, 2010 | Permalink | Comments (0) | TrackBack (0)