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 27, 2010

Upward Pricing Pressure and Critical Loss Analysis: Response

Posted by D. Daniel Sokol

Joe Farrell (FTC) and Carl Shapiro (DOJ) responjd to the critics in Upward Pricing Pressure and Critical Loss Analysis: Response.

ABSTRACT:

As members of the Department of Justice  and Federal Trace Commission working group that is reviewing the Horizontal Merger Guidelines, we thank Competition Policy International for organizing the nine papers in their December 2009 Release 1, Revising the Merger Guidelines. These papers helpfully supplement the information that the DOJ and FTC are receiving in the form of public comments and at the five scheduled public workshops. Public comments and information about the workshops are posted at the FTC web site for the Guidelines review project.

In this article, we respond to two articles that were published in this symposium that address ideas we had published in two papers written before taking our current positions at the FTC and DOJ:

Richard Schmalensee's Should New Merger Guidelines Give UPP Market Definition takes a look at our paper, Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition. In this paper, we developed a simple measure of the upward pricing pressure (“UPP”) that results from a merger between firms selling differentiated products and discussed whether this measure be used as an indicator of the merger’s likely unilateral effects.

Malcolm Coates & Joseph Simons, Critical Loss vs. Diversion Analysis, addresses ideas that we published Critical Loss Analysis. This paper specifically discusses whether in markets with differentiated products, the economics underlying critical loss analysis can instructively be illustrated by asking whether just two products form a relevant market under the Guidelines’ hypothetical monopolist test.

February 27, 2010 | Permalink | Comments (0) | TrackBack (0)

The Evolution of Criminal Antitrust Enforcement Over the Last Two Decades

Posted by D. Daniel Sokol

Scott D. Hammond (DOJ) has a speech on The Evolution of Criminal Antitrust Enforcement Over the Last Two Decades.

February 27, 2010 | Permalink | Comments (0) | TrackBack (0)

Friday, February 26, 2010

CC Publishes Remedies Review

Posted by D. Daniel Sokol

The press release is here.

February 26, 2010 | Permalink | Comments (0) | TrackBack (0)

SEPA, Efficiency, and Payment Card Competition

Posted by D. Daniel Sokol

Wilco Bolt and Heiko Schmiedel (both Bank of the Netherlands) have a new paper on SEPA, Efficiency, and Payment Card Competition.

ABSTRACT: This paper analyzes the welfare implications of creating a Single Euro Payments Area. We study the effects of increased network compatibility and payment scale economies on consumer and merchant card fees and its impact on card usage. In particular, we model competition among debit cards and between debit and credit cards. We show that competitive pressures dampen merchant fees and increase total card acceptance. The paper argues that there is room for multilateral interchange fee arrangements to achieve optimal consumer and merchant fees, taking safety, income uncertainty, default risk, merchant's pricing power, and the avoided cost of cash at the retailers side into account. Consumers and merchants are likely to benefit the most from the creation of SEPA when sufficient payment card competition alleviates potential monopolistic tendencies.

February 26, 2010 | Permalink | Comments (0) | TrackBack (0)

Competition for Long Distance Passenger Rail Services: The Emerging Evidence

Posted by D. Daniel Sokol

John Preston University of Southampton- Department of Civic Engineering explores Competition for Long Distance Passenger Rail Services: The Emerging Evidence.

ABSTRACT: The aim of this paper is to review the emerging evidence on competition in the long distance passenger rail service. This draws on the three bodies of evidence. In section 2, we examine the ex-ante evidence from theoretical models based on Preston (2008a). In section 3, we examine the ex-post evidence on competition for the market, with particular emphasis on the East Coast Main Line franchise in Great-Britain, drawing in part on Preston (2008b). Likewise, in section 4, we consider recent evidence on open access services that are competing in the market in Great-Britain, drawing on Griffiths (2009). Finally, we shall draw some conclusions.

February 26, 2010 | Permalink | Comments (0) | TrackBack (0)

Criminalisation of Cartel Behaviour

Posted by D. Daniel Sokol

David King (Ministry of Economic Development, New Zealand) explores Criminalisation of Cartel Behaviour.

ABSTRACT: This paper considers the case for criminalisation of hard-core cartel behaviour. Two frameworks are applied for considering the issue: retributive justice and deterrence (so as to minimise the social loss). The conclusion is reached that hard-core cartel behaviour has a serious moral dimension and that criminalisation of the offence is justifiable when a retributive approach is taken. It is also concluded that criminalisation is likely to be optimal from a deterrence perspective; this is due to the disutility created by stigma and loss of liberty and to the problems with alternatives such as corporate and individual fines, leniency programmes, and rewards to whistleblowers. Arguments against criminalisation relating to judicial processes and incentives on business are found to be unpersuasive. Achieving broad community support is critical, however. An addendum brings the paper up to date with developments in Australia.

February 26, 2010 | Permalink | Comments (0) | TrackBack (0)

Thursday, February 25, 2010

Retailer Choice and Loyalty Schemes - Evidence from Sweden

Posted by D. Daniel Sokol

Johan  Lundberg (Department of Economics, Umeå University) and and Sofia Lundberg, (Department of Economics, Umeå University) have some interesting data on Retailer Choice and Loyalty Schemes - Evidence from Sweden.

ABSTRACT: From economic theory, it is known that consumer loyalty schemes can have lock-in effects resulting in entry barriers and higher prices. This paper concerns consumer loyalty schemes where the main issue is to test the hypothesis that loyalty scheme membership affects the choice of food retailer. This choice is modeled as a random utility maximization problem estimated with maximum likelihood. Based on a data set covering 1,551 Swedish households, we find evidence supporting this hypothesis. Further, according to the results, store characteristics and geographical distance matter for the choice of retailer while household characteristics are not found to have a significant effect.

February 25, 2010 | Permalink | Comments (0) | TrackBack (0)

Dynamic Changes in Market Structure and Competition in the Corn and Soybean Seed Sector

Posted by D. Daniel Sokol

William W. Wilson and Bruce Dahl (Dept of Agribusiness and Applied Economics - North Dakota State University) offer their thoughts on Dynamic Changes in Market Structure and Competition in the Corn and Soybean Seed Sector.

ABSTRACT: The purpose of this paper is to analyze the dynamics of R&D investments, and the structure of the seed distribution sector using novel data sets that have not been used before to describe competition in these industries. The results describe four sets of issues of particular
importance. One is that while all agbiotechology firms have increased their R&D expenditures,
there have been sharp differences in the scope of this spending. Most important is that this
has spawned the growth in what is now referred as “seeds and traits.” Second, a large number
of future traits will be commercialized in the coming years. A third set of results indicates that
one firm grew its market share by 14% and a portion of this growth has been through
acquisition. The other three majors lost market share, but the ISC (independent seed
companies) grew by 10%. At the crop reporting district level, the industry concentration ratios
for the four largest firms (CR4) in most regions are .5‐.7. Finally, farmers purchased corn and
soybean seed from 4‐7 different companies in most crop reporting districts (CRD) and up to 20
or more companies in the larger producing regions.

Download Dynamic seed industry

February 25, 2010 | Permalink | Comments (1) | TrackBack (0)

On factors promoting and hindering entry and exit

Posted by D. Daniel Sokol

Martin A. Carree (Maastricht University) has thoughts On factors promoting and hindering entry and exit.

ABSTRACT: Entry and exit rates can differ widely between industries, between regions, between individuals and over time. They are key features of the dynamics of industries and regions. There are various reasons for these differences. The current chapter relates entry (and exit) to entrepreneurship and discusses a range of factors that make one industry (or region) more likely to attract entrants or to have more firms exiting than others. These factors are related to incentives, barriers and the dynamic interrelationship between entry and exit. The chapter covers general patterns: it must be acknowledged of course that there is a huge difference between a small part-time retail venture opening up and a diversified entry employing hundreds of workers. The entry barriers they face are very different and so are the opportunities they exploit. Still, the chapter provides a general overview of factors behind the processes of entry and exit, at the industrial, temporal, regional and individual level.

February 25, 2010 | Permalink | Comments (0) | TrackBack (0)

Getting The Deal Through When Time Is Of The Essence: Antitrust Strategies For Time Sensitive Transactions

Posted by D. Daniel Sokol

American Bar Association
Section of Antitrust Law
The Mergers & Acquisitions Committee invites you to

“Getting The Deal Through When Time Is Of The Essence: Antitrust Strategies For Time Sensitive Transactions”

Date: Wednesday, March 3, 2010
Time: 12:30pm-2:00pm Eastern
Location: Arnold & Porter, 555 Twelfth Street, NW, Washington, DC

As the Department of Justice and Federal Trade Commission consider improvements to their
approach to merger review, it is timely to consider how the current system is applied to particularly
time-sensitive transactions. This panel discussion will explore the application of the merger review
process under the Hart-Scott-Rodino ("HSR") Act to transactions and businesses that may be put in
jeopardy as a result of delay and uncertainty caused by an extended review. Critical timing
considerations arise in a variety of contexts, including, for example, hostile or contested takeover
bids, bankruptcy-related transactions, transactions arising out of an industry crisis (e.g., the
investment firm mergers in late 2008), or potential conflicts with other US or foreign regulatory
regimes. The panel will provide practical guidance on navigating time-sensitive transactions
through the HSR process and identify areas for improvements in the merger review process. For
example: How does the HSR process differ for hostile tender offers and for bankruptcy
transactions? What are best practices for an up-front remedy and how long does the process take?
What is a pocket consent decree? What is a realistic timeframe for rapid compliance with a second
request? How could the HSR process (and agency practice) be further improved or adapted to
time-sensitive transactions? What are some best practices when planning for transactions that
counsel knows will be time sensitive? Can parties avoid delay resulting from agency clearance
battles?

Our panelists who will take up these issues bring a wealth and diversity of experience to the
discussion.

Panelists:
Steven Newborn, Partner, Weil, Gotshal & Manges LLP
Deborah Feinstein, Partner, Arnold & Porter LLP
Joshua Soven, Chief, Litigation I Section, Antitrust Division, Department of Justice
Moderator: Mark Nelson, Partner, Cleary Gottlieb Steen and Hamilton LLP

If you wish to dial in “Click Here” to register. You will receive the dial in number
with your confirmation.

Recordings of this program will be posted on the Section website Members Only area
and are downloadable in a MP3 format, free of charge at
http://www.abanet.org/antitrust/at-bb/audio/10/10-audio.shtml.

February 25, 2010 | Permalink | Comments (0) | TrackBack (0)

Entry Selection

Posted by D. Daniel Sokol

J.J.A. Kamphorst, Erasmus School of Economics, E. Mendys-Kamphorst, OPTA (The Netherlands Independent Post and Telecommunications Authority), and B. Westbrock, Utrecht School of Economics discuss Entry Selection  in a new working paper.

ABSTRACT: It is well-known in the IO literature that incumbent firms may want to deter entry by behaving as if they are efficient. In this paper we show that incumbents may sometimes prefer to encourage entry by mimicking the behaviour of a less efficient firm for the following reason. If the incumbent cannot deter potential efficient entrants, he may want to elicit entry by an inefficient firm who would not enter if he knows that the incumbent is efficient. The presence of the additional firm in the market prevents further entry. The incumbent then faces a less efficient competitor in the long run.

February 25, 2010 | Permalink | Comments (0) | TrackBack (0)

Is Google the Next Microsoft? The European Commission May Think So

Posted by D. Daniel Sokol

The new Commissioner seems to be proceeding along the lines of the old one with an investigation of potential abuse of dominance by a US tech firm.  Stay tuned as I am sure sparks will fly.  The WSJ article is here.

Update 10:14am: According to today's FT, DOJ may be emboldened by the European Google efforts to bring one of its own against Google.

February 25, 2010 | Permalink | Comments (0) | TrackBack (0)

Reflections on Section 5 of the FTC Act and the FTC’s Case against Intel

Posted by D. Daniel Sokol

Dan Crane (Michigan Law) provides Reflections on Section 5 of the FTC Act and the FTC’s Case against Intel.

ABSTRACT: This paper explores the policy implications of the FTC's decision to file its enforcement action against Intel under Section 5 of the FTC Act and declare that it has the power to go further under Section 5's "unfair competition" prong than it could under Section 2 of the Sherman Act. It argues that Intel is an inappropriate case for the Commission to make a bid for Section 5 independence since none of the Commission's institutional advantages over Article III courts justifies a departure from ordinary Section 2 norms in this case. Indeed, the Intel case has the potential to set back the Commission's enforcement powers by prompting a reviewing court to chastise the Commission for overreaching and rejecting a broad view of Section 5.

February 25, 2010 | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 24, 2010

Law and Development: The Way Forward or Just Stuck in the Same Place?

Posted by D. Daniel Sokol

I have written a short piece for an online symposium on Law and Development in the Northwestern Law Review Colloquy that involved a number of other scholars.  The group included: Tom Ginsburg (U. Chicago Law), Salil Mehra (Temple Law), Katharina Pistor (Columbia Law), Anna Gelpern (American U. Law), Mariana Prado (U. Toronto Law), Susan D. Franck (Washington & Lee Law), John Cioffi (UC Riverside Political Science), Kevin Davis (NYU Law), Adam Feibelman (Carolina Law), Brian Z. Tamanaha (Wash U Law), Yuka Kaneko (Kobe Law), D. Daniel Sokol (U. Florida Law), Daniel Kaufmann (Brookings), Veronica Taylor (U. Washington Law) and John Ohnesorge (U. Wisconsin Law) 

My contribution in the give and take is titled Law and Development: The Way Forward or Just Stuck in the Same Place?

ABSTRACT: This Essay does three things. First, it provides an overview of Law and Development issues. Second, it responds to other pieces in the symposium "The Future of Law and Development". Third, it suggests that to measure success, Law and Development needs clearer goals.

February 24, 2010 | Permalink | Comments (0) | TrackBack (0)

Regulation, Generic Competition and Pharmaceutical Prices: Theory and Evidence from a Natural Experiment

Posted by D. Daniel Sokol

Kurt Richard Brekke, Norwegian School of Economics and Business Administration (NHH) - Department of Economics, Tor Helge Holmas, Foundation for Research in Economics and Business Administration, and Odd Rune Straume, University of Minho - Economic Policies Research Unit study Regulation, Generic Competition and Pharmaceutical Prices: Theory and Evidence from a Natural Experiment.

ABSTRACT: We study the impact of regulatory regimes on generic competition and pharmaceutical pricing using a unique policy experiment in Norway, where reference pricing (RP) replaced price cap regulation in 2003 for a sub-sample of off-patent products. We exploit a detailed panel dataset at product level covering a wide set of off-patent drugs before and after the policy reform. Off-patent drugs not subject to reference pricing serve as our control group. We find that RP leads to lower relative prices, with the effect being driven by strong brand-name price reductions, and not increases in generic prices. We also find that RP increases generic competition, resulting in lower brand-name market shares. Finally, we show that RP has a strong negative effect on average prices at molecule level, suggesting significant cost-savings.

February 24, 2010 | Permalink | Comments (0) | TrackBack (0)

The Antitrust Consumer Welfare Paradox

Posted by D. Daniel Sokol

Barak Orbach (Arizona Law) has posted the interesting The Antitrust Consumer Welfare Paradox.

ABSTRACT: “Consumer welfare” is the only articulated goal of antitrust law in the United States. It became the governing standard following the 1978 publication of Robert Bork’s The Antitrust Paradox. The consumer welfare standard has been instrumental to the implementation and enforcement of antitrust laws. Courts believe they understand this standard, although they have failed to effectively analyze it. Scholars hold various views about the desirable interpretations of the standard, and they use judicial statements selectively to substantiate their personal views. This Article introduces the Antitrust Consumer Welfare Paradox: It shows that, under all present interpretations of the term “consumer welfare,” there are several sets of circumstances in which the application of antitrust laws may hurt consumers and reduce total social welfare. The Article shows that Bork’s use of the term “consumer welfare” obscured basic concepts in economics. The Article clarifies that the antitrust methodology permits only surplus analysis and does not accommodate welfare analysis. It explains the conceptual differences between the terms “surplus” and “welfare” and the relevant implications of each. The Article further explains the differences between two other competing standards—“consumer surplus” and “total surplus”—that presently serve as proposed interpretations for the term “consumer welfare.” Each interpretation has its limits and the necessary analytical progress requires conceptual clarity. The Article argues that whatever good ends the “consumer welfare” phrase once may have served, antitrust law should now lay it to rest.

February 24, 2010 | Permalink | Comments (0) | TrackBack (0)

Quality Distortions in Vertical Relations

Posted by D. Daniel Sokol

Pio Baakey and Vanessa von Schlippenbachz (both DIW and Humboldt University Berlin - Econ) explain Quality Distortions in Vertical Relations.

ABSTRACT: This paper examines how delivery tariffs and private quality standards are determined in vertical relations that are subject to asymmetric information. We consider an infinitely repeated game where an upstream firm sells a product to a downstream firm. In each period, the firms negotiate a delivery contract comprising the quality of the good as well as a non-linear tariff. Assuming asymmetric information about the actual quality of the product and focusing on incentive compatible contracts, we show that delivery contracts are more efficient the lower the firms' outside options, i.e. the higher their mutual dependency. Buyer power driven by a reduced outside option of the upstream firm enhances the efficiency of vertical relations, while buyer power due to an improved outside option of the downstream firm implies less efficient outcomes.

February 24, 2010 | Permalink | Comments (0) | TrackBack (0)

Department of Justice and the U.S. Department of Agriculture March 12 Iowa Panelists Announced

Posted by D. Daniel Sokol

The press release is here.

Opening Remarks (9:00 a.m. CST - 9:15 a.m. CST)

Tom Vilsack, Secretary of Agriculture, U.S. Department of Agriculture
Christine Varney, Assistant Attorney General for Antitrust, U.S. Department of Justice

Roundtable Discussion and Presentation of Issues (9:15 a.m. CST - 11:30 a.m. CST)

Tom Vilsack, Secretary of Agriculture, U.S. Department of Agriculture
Christine Varney, Assistant Attorney General for Antitrust, U.S. Department of Justice
Tom Miller, Attorney General, State of Iowa
Bill Northey, Secretary of Agriculture, State of Iowa
Tom Harkin, Senator, U.S. Senate (tentative)
Chuck Grassley, Senator, U.S. Senate (tentative)
Leonard Boswell, Congressman, U.S. House of Representatives (tentative)

Invited:

Chet Culver, Governor, State of Iowa

A farmer roundtable discussion and testimony will also be given at this time. Farmer panelists will be posted on the Web site at a later date.

Seed Competitive Dynamics Panel (1:00 p.m. CST - 2:15 p.m. CST)

Moderator:
James MacDonald, Chief, Agricultural Structure and Productivity Branch, Economic
Research Service, U.S. Department of Agriculture

Panelists:
Ray Gaesser,Soybean and Corn Farmer, Corning, Iowa; Vice President, American Soybean Association; Former President, Iowa Soybean Association
Neil E. Harl,Charles F. Curtiss Distinguished Professor in Agriculture and Emeritus Professor of Economics, Iowa State University; Member of the Iowa Bar
Dermot Hayes, Professor of Economics and Finance, Pioneer Chair in Agribusiness, Iowa State University
Diana Moss, Vice President & Senior Fellow, American Antitrust Institute
Jim Tobin, Vice President, Industry Affairs, Monsanto Company

Agricultural Trends Panel (2:15 p.m. CST - 3:15 p.m. CST)

Moderator:
Phil Weiser, Deputy Assistant Attorney General, U.S. Department of Justice

Panelists:
Brian Buhr, Professor and Head of Department, Applied Economics, University of Minnesota
Rachael Goodhue, Associate Professor, Department of Agriculture and Resource Economics, University of California, Davis
Mary Hendrickson,Extension Associate Professor of Rural Sociology, University of Missouri
John Lawrence, Professor of Economics, Iowa State University
Chuck Wirtz, pork producer, Whittemore, Iowa
Patrick Woodall, Research Director, Food & Water Watch

Enforcer Roundtable Discussion Panel (3:30 p.m. CST - 4:15 p.m. CST)

Moderator:
Mark Tobey, Special Counsel for State Relations and Agriculture, U.S. Department of Justice

Panelists:
Steve Bullock, Attorney General, State of Montana
Richard Cordray, Attorney General, State of Ohio
John Ferrell, Deputy Under Secretary for Marketing and Regulatory Programs, U.S. Department of Agriculture
Stephen Obie, Director, Division of Enforcement, Commodity Futures Trading Commission
William Stallings, Assistant Section Chief, Transportation, Energy and Agriculture Section, Antitrust Division, U.S. Department of Justice

Public Testimony (4:15 p.m. CST - 5:15 p.m. CST)

This is an opportunity for those in the audience to make comments in an open forum.


February 24, 2010 | Permalink | Comments (1) | TrackBack (0)

Calling All Antitrust/ Competition Law and Economics Professors: Join the ABA Antitrust Section

Posted by D. Daniel Sokol

This is the first of what will be periodic pleas for greater involvement by the academic community in the US and elsewhere in the ABA Antitrust Section.

In my capacity as Vice Chair of the Membership Committee of the ABA Section of Antitrust Law, I am writing to encourage you to join in the Section if you are not yet a member. The Section is a wonderful vehicle to engage in a broader academic and policy community on the issues of antitrust and consumer protection.

The Antitrust Section is the leading professional organization for those interested in the fields of antitrust and competition law, trade regulation, consumer protection and economics. Our more than 8,000 members include attorneys and non-lawyers from private law firms, in-house counsel, non-profit organizations, consulting firms, federal and state government agencies, as well as judges, professors and law students. We provide an outstanding assortment of programs, publications, discussion groups and timely updates on recent developments in all facets of antitrust and consumer protection law. Our members also have opportunities to join or participate in 25 substantive committees.

A number of professors serve in a leadership capacity in the Section. The list includes: Jon Baker (American University Law), Roger Blair (University of Florida Economics) Steve Calkins (Wayne State Law), Ned Cavanaugh (St. John’s Law), Dan Crane (University of Michigan Law), Tammy Feldman (University of Michigan Business), Harry First (NYU Law) Andy Gavil (Howard Law), Louis Kaplow (Harvard Law), Tom Kauper (Michigan Law), Ben Klein (UCLA Economics), Marina Lao (Seton Hall Law), Mark Lemley (Stanford Law), Christopher Leslie (UC Irvine Law), John Lopatka (Penn State Law), Bill Page (Florida Law), Chris Sprigman (Virginia Law), Danny Sokol (University of Florida Law), Val Suslow (Michigan Business), Spencer Weber Waller (Chicago Loyola Law), Joshua Wright (George Mason Law), and Dennis Yao (Harvard Business).

The Section also welcomes increased non-US academic involvement in membership and programming.

To join, click here.

February 24, 2010 | Permalink | Comments (0) | TrackBack (0)

Price-concentration analysis in merger cases with differentiated products

Posted by D. Daniel Sokol

Walter Beckert Birkbeck College, University of London, IFS and UK Competition Commission and Nicola Mazzarotto UK Competition Commission explain Price-concentration analysis in merger cases with differentiated products.

ABSTRACT: This paper considers the empirical assessment of the relationship between prices and number of firms in local markets in geographic or, more generally, characteristic space and its use as evidence in merger cases. It outlines a structural, semi-nonparametric econometric model of competition in such markets, examines its testable implications in terms of price-concentration relationships, and demonstrates that the model is non-parametrically identified. This general approach to priceconcentration analysis in differentiated product markets is illustrated in a small-scale application to cinemas in the UK. The application highlights the main decision points faced by an authority when assessing the weight that can be attached to this type of analysis as evidence.

February 24, 2010 | Permalink | Comments (0) | TrackBack (0)