Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, February 20, 2010

The Role of Static and Dynamic Analysis in Pharmaceutical Antitrust

Posted by D. Daniel Sokol

Tom Rosch (FTC) has given a speech on The Role of Static and Dynamic Analysis in Pharmaceutical Antitrust.

February 20, 2010 | Permalink | Comments (0) | TrackBack (0)

Coordinated Remedies: Convergence, Cooperation, and the Role of Transparency

Posted by D. Daniel Sokol

Christine Varney gave a speech Coordinated Remedies: Convergence, Cooperation, and the Role of Transparency at the Institute of Competition Law New Frontiers of Antitrust Conference on February 15, 2010.

February 20, 2010 | Permalink | Comments (0) | TrackBack (0)

Friday, February 19, 2010

Dr. Alexander Italianer in Philip Lowe out as Director-General for Competition

Posted by D. Daniel Sokol

A bio on Italianer is available here.

February 19, 2010 | Permalink | Comments (0) | TrackBack (0)

Intellectual Property And The Limits Of Antitrust

Posted by D. Daniel Sokol

Katarzyna Czapracka (White & Case) has a new book out on Intellectual Property And The Limits Of Antitrust.

BOOK ABSTRACT: The scope of US antitrust law as defined in the Supreme Court’s decisions in Trinko and Credit Suisse Securities is much narrower than the scope of EU competition law. US antitrust enforcers have become increasingly reluctant to apply antitrust rules to regulated markets, whereas the European Commission has consistently used EU competition rules to correct the externalities resulting from government action. The contrasting approaches adopted by US and EU antitrust enforcers to these issues, as with the differences in addressing market dominance, have had a profound impact on the scope of antitrust intervention in the IP field. This book provides an in-depth analysis of the relevant recent developments on both sides of the Atlantic and identifies the pitfalls of regulating IP through competition rules.

February 19, 2010 | Permalink | Comments (0) | TrackBack (0)

Single-Firm Conduct: A Discipline in Search of Itself (Try with Google?)

Posted by D. Daniel Sokol

Roberto Pardolesi, Libera Università degli Studi Sociali (LUISS) Guido Carli and Luca Arnaudo, Libera Università degli Studi Sociali (LUISS) Guido Carli have written on Single-Firm Conduct: A Discipline in Search of Itself (Try with Google?).

ABSTRACT: This paper analyzes US and EU antitrust policies towards abusive unilateral conduct pursued by a dominant firm and strongly criticize them, aiming at finding a more reliable assessment of the basic issues of consumer's exploitation and rival's exclusion. In fact, the discipline of unilateral conduct denounces widespread inconsistencies related to its conceptual foundations. The American side does not recognize exploitation as a form of abusive conduct for the dominant firm: excessive pricing is no issue in the US antitrust environment, and Supreme Court jurisprudence from Trinko to linkLine makes crystal clear that setting a more-than-competitive price not only escapes prohibition, but is the award reserved for the winners of the struggle in the market arena. Article 82 (a) of the EC Treaty forbids the imposition of unfair purchase or selling prices or other unfair trading conditions, but Commission's case law and policy statements (e.g. the 2008 Guidance Paper on Commission enforcement priorities in applying Article 82) have greatly emphasized exclusionary effects, with exploitative effects appearing to be little more than a sideshow. This practical emasculation of the relevant discipline makes little sense either in economic or legal terms, and leaves the overall conceptual picture in a state of complete disarray, with direct consequences on the legal enforcement. The many antitrust issues arising from the Google Books Settlement case are a good occasion to verify the sustainability of the antitrust policy towards single-firm conduct previously discussed: more in details, the risks of future excessive pricing stemming from the approval of the settlement led many commentators, as well as the US Department of Justice, to reconsider the award-of-the-winner theory. The paper also addresses this topic and try to offer a sound overview of it.

February 19, 2010 | Permalink | Comments (0) | TrackBack (0)

Back from Paris - and some OECD News

Posted by D. Daniel Sokol

I am back from the OECDCompetition Committee meeting in Paris.  There were some interesting developments.  Joe Phillips is retiring as head of the Competition Committee.  Mike Wise, who has written over 50 peer reviews and knows more about the internal working of many competition agencies than some of the newer people at those agencies is also retiring.

I presented a talk on  Competition Policy and Comparative Corporate Governance of State-Owned Enterprises, building off of my paper (download it here).  The quality of the meetings is good but people need to stick strictly to time limits as sessions would go over the allotted time. Also, the format would be improved by work Q&A.  With so many people in the room, people want to talk and the forum should allow for better audience participation (with short comments preferred).

February 19, 2010 | Permalink | Comments (0) | TrackBack (0)

Crime and Custom in the Dutch Construction Industry

Posted by D. Daniel Sokol

Marc Hertogh, University of Groningen - Faculty of Law has written on Crime and Custom in the Dutch Construction Industry.

ABSTRACT: In 2001, the construction industry in the Netherlands was at the heart of many public and political debates. A television documentary suggested that all major construction companies were involved in an illegal clearing system that colluded in price offers for public works. After this TV program, the Dutch parliament decided to conduct a parliamentary enquiry which showed a widespread use of cartels and structural ‘bid rigging’ within the Dutch construction industry. Despite the fact that the clearing system of the Dutch construction industry was prohibited by the European Commission in 1992 and by the 1998 Dutch Competition Act, Dutch builders continued their illegal activities as if nothing had changed. This case raises several important questions. Why were these practices so widespread in the Dutch construction industry? Why did Dutch contractors continue these practices even after they were made illegal? And – in more general terms – what does this case tell us about the interplay between state-regulation and self-regulation? Most previous studies focus on the lack of compliance in the Dutch construction industry with antitrust law. By contrast, this paper uses a ‘constitutive’ approach. Rather than focusing on legal compliance, I will use the theoretical framework of legal consciousness to focus on people’s understandings of law. Thus, rather than asking how much does law matter, this paper asks: how does antitrust law matter in the Dutch construction industry?

February 19, 2010 | Permalink | Comments (0) | TrackBack (0)

Thursday, February 18, 2010

Robust Exclusion Through Loyalty Discounts

Posted by D. Daniel Sokol

Einer Elhauge, Harvard University - Harvard Law School and Abraham L. Wickelgren, University of Texas at Austin - School of Law have posted the very interesting Robust Exclusion Through Loyalty Discounts.

ABSTRACT: We consider loyalty discounts whereby the seller promises to give buyers who commit to buy from it a lower price than the seller gives to uncommitted buyers. We show that an incumbent seller can use loyalty discounts to soften price competition between itself and a rival, which raises market prices to all buyers. Each individual buyer’s agreement to a loyalty discount externalizes most of the harm of that individual agreement onto all the other buyers. The resulting externality among buyers makes it possible for an incumbent to induce buyers to sign these contracts even if they reduce buyer and total welfare. Thus, if the entrant cost advantage is not too large, we prove that with a sufficient number of buyers, there does not exist any equilibrium in which at least some buyers do not sign loyalty discount contracts, and there exists an equilibrium in which all buyers sign and the rival is foreclosed from entry. As a result, with a sufficient number of buyers, an incumbent can use loyalty discounts to increase its profit and decrease both buyer and total welfare. Further, the necessary number of buyers can be as few as three. These effects occur even in the absence of economies of scale in production and even if the buyers are not intermediaries who compete with each other in a downstream market.

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

Bridging the Divide? Theories for Integrating Competition Law and Consumer Protection

Posted by D. Daniel Sokol

Max Huffman, Indiana University School of Law -- Indianapolis provides his thoughts on Bridging the Divide? Theories for Integrating Competition Law and Consumer Protection.

ABSTRACT: Commissioner Kovacic of the US Federal Trade Commission has stated that “consumer protection laws are important complements to competition policy.” According to the UK Office of Fair Trading, “[c]ompetition and consumer policy are interdependent”; together they “provide a framework for markets to deliver maximum benefits for consumer welfare and productivity growth.” Competition Commissioner Aitken of the Canadian Competition Bureau noted, “I do really think the two mandates address two sides of the same coin with the ultimate goal of economic and consumer welfare.” At the Fourth Antitrust Marathon, hosted by the Irish Competition Authority and executed by Professor Spencer Waller and Dr. Philip Marsden, the lead-off topic was the integration of competition law and consumer protection. This paper theorizes that topic.

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

Competition with Exclusive Contracts and Market-Share Discounts

Posted by D. Daniel Sokol

Giacomo Calzolari, University of Bologna - Department of Economics, and Vincenzo Denicolò, University of Bologna - Department of Economics describe Competition with Exclusive Contracts and Market-Share Discounts.

ABSTRACT: We study the effects of exclusive contracts and market-share discounts (i.e., discounts conditioned on the share a firm receives of the customer's total purchases) in an adverse selection model where firms supply differentiated products and compete in non-linear prices. We show that exclusive contracts intensify the competition among the firms, increasing consumer surplus, improving efficiency, and reducing profits. Firms would gain if these contracts were prohibited, but are caught in a prisoner's dilemma if they are permitted. In this latter case, allowing firms to offer also market-share discounts unambiguously weakens competition, reducing efficiency and harming consumers. However, starting from a situation where exclusive contracts are prohibited, the effect of market-share discounts (which include exclusive contracts as a limiting case) is ambiguous.

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

Merger control as barrier to EU banking market integration

Posted by D. Daniel Sokol

Matthias Köhler (ZEW) has posted Merger control as barrier to EU banking market integration.

ABSTRACT: In 2005, the President of the Bank of Italy blocked the cross-border acquisition of two Italian banks for prudential reasons and formal errors. Because it became later public that both deals were not blocked for prudential reasons, but to protect domestic banks from foreign investors. A survey of the EU Commission indicates that the misuse of supervisory powers and political interference is not only a barrier to cross-border consolidation in Italy, but in other EU countries as well. Systematic empirical evidence on the role of merger control as barrier to M&A is, however, still missing. The main problem is the lack of data on the scope for politicians and supervisors to block M&A during merger control. The main contribution of this paper is to collect this data and to construct indices on the political independence of the supervisory authorities and the transparency of merger control. The main source of informati! on is a questionnaire that was sent to the supervisors in the 25 EU member countries between October 2006 and March 2007.

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

Wednesday, February 17, 2010

Iqbal, Twombly, and the Expected Cost of False Positive Errors

Posted by D. Daniel Sokol

Max Huffman Indiana University School of Law -- Indianapolis and Mark Anderson University of Idaho - College of Law have written on Iqbal, Twombly, and the Expected Cost of False Positive Errors.

ABSTRACT: The Twombly/Iqbal plausibility standard is rooted in a concern that allowing a plaintiff to proceed to discovery creates a possibility that a defendant facing a non-meritorious claim will settle rather than endure the burdens of discovery. Such settlements create so-called “false positives,” since a plaintiff recovers a remedy to which it is not entitled. False positives reflect a wealth transfer from an innocent defendant to an undeserving plaintiff. They also induce parties to order their affairs to avoid innocent behavior that might give rise to false positives in the future. This over-deterrence results in harm to parties who never end up in court, and has external social costs where the over-deterred party’s conduct is beneficial. The relevant question is not absolute cost, but the expected cost of false positive error. The expected cost of false positives depends also on their likelihood.
Likelihood turns on the burdensomeness of discovery in a particular context. Non- burdensome discovery does not produce a great incentive to settle. Burdensomeness depends on the nature of the contested facts. Facts that are uniquely in the hands of the defendants threaten a substantial burden. Contested facts available both to the plaintiff and the defendant threaten a much lesser burden. Whether facts are uniquely in the hands of the defendant varies depending on the particular element of a substantive claim in controversy.


Section II analyzes the change in the pleading standard that occurred in Twombly and Iqbal. Section III examines the rationale for the Twombly/Iqbal plausibility standard and its relationship to the various types of facts that can be put in controversy by different types of elements of substantive claims. This examination produces the conclusion that applying the Twombly/Iqbal standard requires separately analyzing the likelihood of false positives raised by each element of a substantive claim. Section IV undertakes this analysis in the context of antitrust claims under Sections One and Two of the Sherman Act. The subsections of Section IV identify an element of a Sherman Act claim, analyze the nature of facts relevant to the element and explain how the plausibility standard should apply to facts of that nature. In Section V we test decided cases for their adherence to the expected cost of false positive error approach. We conclude in Section VI with the suggestion that a similar element-by-element analysis is necessary for each substantive field of federal civil litigation.

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

A framework to enforce anti-predation rules

Posted by D. Daniel Sokol

Kai Hüschelrath and Jürgen Weigand (both ZEW - Econ) have posted A framework to enforce anti-predation rules.

ABSTRACT: The paper develops a framework to enforce anti-predation rules that explicitly takes the intervention stage into account. In particular, it is proposed to improve predation enforcement by focusing on two channels: refining the current regime, and amending it. With respect to the refinement of the current predation enforcement regime, criteria for the imposition of optimal gain- or harm-based fines are derived in order to sharpen the deterrent effect of predation enforcement. However, given the very low probability of conviction for predators a policy proposal solely based on an increase in the fines for detected and convicted predators might be too weak to significantly amplify the deterrence effect in particular and to improve predation enforcement in general. As a consequence, the introduction of a pre-screening approach is proposed, which aims at identifying industries in which entry is difficult but desirable and a p! redation strategy might be a suitable instrument for an incumbent to fight such occasional entry attempts. In those industries, it is advisable to reduce the high standard of proof in predation enforcement, as its basic justification - the danger to create a negative deterrence effect - is significantly reduced.

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

OECD Competition Committee Meeting in Paris

Posted by D. Daniel Sokol

I am in Paris today at the OECD meeting.  I am presenting my work on comparative corporate governance and competition policy.  Those presenting on the topic of Competition and Corporate Governance are: Marcello Bianchi, chair of the OECD Steering Group on Corporate Governance and Head of the Italian Regulation Impact Analysis Office, Economic Regulation Division (CONSOB); Professor Hugo Caneo, Universidad de Chile; Professor Daniel Sokol, University of Florida; Professor Spencer Weber Waller, Loyola University (Chicago); and Professor Yishay Yafeh, the Hebrew University.

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

Critical loss analysis in market definition and merger control

Posted by D. Daniel Sokol

Kai Hüschelrath (ZEW - Economics) explains Critical loss analysis in market definition and merger control.

ABSTRACT: The last couple of years have seen an increasing interest in critical loss analysis, both, in academia and in practice. This development is documented by various research papers, high-level exchanges between antitrust experts as well as an increasing number of case decisions which make use of some form of critical loss analysis. In this context, it is the aim of this article to describe the general method of critical loss analysis, to assess important properties of the concept, to show how critical loss analysis has to differ between market definition exercises and the evaluation of the competitive effects of horizontal mergers and to discuss applications of critical loss analysis in recent cases. The results suggest that the application of critical loss analysis in practice is often not as straightforward as the rather simple theoretical concept might suggest. In fact, the method has to be applied with great care in ord! er to receive meaningful results.

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

Tuesday, February 16, 2010

On the sustainability of collusion in Bertrand supergames with discrete pricing and nonlinear demand

Posted by D. Daniel Sokol

Paul Zimmerman (FTC) provides his thoughts On the sustainability of collusion in Bertrand supergames with discrete pricing and nonlinear demand.

ABSTRACT: In traditional industrial organization models of Bertrand supergames, the critical discount factor governing the sustainability of collusion is independent of key demand and supply parameters. Recent research has demonstrated that these counterintuitive results stem from the assumption that firms can change prices in infinitesimally small increments (i.e., continuously). This note considers the effects of demand curvature in the context of a model of collusion where, as in Gallice (2008), Bertrand competitors can deviate only by lowering prices by some small, discrete amount. Two alternative demand specifications that capture the influence of demand curvature are considered. In either case, it is shown that with discrete price changes the critical discount factor is determined by the key demand parameters, including demand curvature. However, the direct effects of increased concavity (or convexity) in market demand on th! e sustainability of collusion runs in opposite directions across the two models. This discrepancy is shown to arise from the way in which the respective demand curves rotate in response to a change in the demand curvature parameter. The results support the conclusion of earlier research that determining the potential for collusion in homogenous goods industries likely requires careful case-by-case investigation.

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

Quantum Model of Bertrand Duopoly

Posted by D. Daniel Sokol

Salman Khan, M. Ramzan, and M. K. Khan (all Department of Physics Quaid-i-Azam University Pakistan) explain Quantum Model of Bertrand Duopoly.

ABSTRACT: We present the quantum model of Bertrand duopoly and study the entanglement behaviour on the profit functions of the firms. Using the concept of optimal response of each firm to the price of the opponent, we found four Nash equilibria for maximally entangled initial state. We have shown that only one point among the four Nash equilibria has valid physical meaning. The very presence of quantum entanglement in the initial state gives payoffs higher to the firms than the classical payoffs at the physically valid point for higher values of substitution parameter.

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

Speech by new European Competition Commissioner Joaquín Almunia Lays out Vision

Posted by D. Daniel Sokol

He has communicated his vision for competition policy.  See here.

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

Are There Any Cournot Industries?

Posted by D. Daniel Sokol

David Flath (Institute of Social and Economic Research, Osaka University) asks Are There Any Cournot Industries?

ABSTRACT: For 70 Japanese manufacturing industries, I test the simple Cournot hypothesis of proportionality between industry price-cost margin and Herfindahl index against the non-nested alternative that the industry price-cost margin remains constant in the face of varying Herfindahl index, as it would under a simple product differentiated Bertrand framework. I then test each of these against the alternative hybrid specification that nests both of them, and from the pairwise tests, compute likelihoods of each specification. The simple Cournot specification is the most likely for five of the industries, the simple Bertrand specification for 35, and the hybrid specification for 30.

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

Monday, February 15, 2010

Competition Policy and Comparative Corporate Governance of State-Owned Enterprises

Posted by D. Daniel Sokol.

D. Daniel Sokol (University of Florida - Law) analyzes Competition Policy and Comparative Corporate Governance of State-Owned Enterprises.

ABSTRACT: The legal origins literature overlooks a key area of corporate governance - the governance of state-owned enterprises (“SOEs”). There are key theoretical differences between SOEs and publicly-traded corporations. In comparing the differences of both internal and external controls of SOEs, none of the existing legal origins allow for effective corporate governance monitoring. Because of the difficulties of undertaking a cross-country quantitative review of the governance of SOEs, this Article examines, through a series of case studies, SOE governance issues among postal providers. The examination of postal firms supports the larger theoretical claim about the weaknesses of SOE governance across legal origins. In itself, the lack of effective corporate governance would not be fatal if some of the SOE’s inefficient and societal-welfare-reducing behavior could be remedied under antitrust law. However, a review of antitrust decisions on the issue of predatory pricing by SOEs reveals that antitrust is equally ineffective in its attempts to monitor SOEs. This Article concludes by identifying a number of devices to reduce the current inadequacies of both antitrust and corporate governance of SOEs.

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