Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Wednesday, March 9, 2011

Draft Merger regulations published by the Competition Commissdion of India are now open for consultation

Posted by D. Daniel Sokol

Draft Merger regulations published by the CCI are now open for consultation. You can send in comments before 22 March 2011. More details are available at : http://www.cci.gov.in/menu/DraftSug080311.pdf.

March 9, 2011 | Permalink | Comments (0) | TrackBack (0)

Sunk costs, market contestability, and the size distribution of firms

Posted by D. Daniel Sokol

Ioannis N. Kessides (World Bank) and Li Tang (Inter-American Developmenjt Bank) analyze Sunk costs, market contestability, and the size distribution of firms.

ABSTRACT: This paper offers a new economic explanation for the observed inter-industry differences in the size distribution of firms. The empirical estimates--based on three temporal (1982, 1987, and 1992) cross-sections of the four-digit United States manufacturing industries--indicate that increased market contestability, as signified by low sunk costs, tends to reduce the dispersion of firm sizes. These findings provide support for one of the key predictions of the theory of contestable markets: that market forces under contestability would tend to render any inefficient organization of the industry unsustainable and, consequently, tighten the distribution of firms around the optimum. 

March 9, 2011 | Permalink | Comments (0) | TrackBack (0)

Economic Analysis of the Effects of the Federal Reserve Board’s Proposed Debit Card Interchange Fee Regulations on Consumers and Small Businesses

Posted by D. Daniel Sokol

David S. Evans, University of Chicago Law School, University College London, Robert E. Litan, Ewing Marion Kauffman Foundation, AEI-Brookings Joint Center for Regulatory Studies, and Richard Schmalensee, Massachusetts Institute of Technology (MIT) - Sloan School of Management raise some very serious concerns with their Economic Analysis of the Effects of the Federal Reserve Board’s Proposed Debit Card Interchange Fee Regulations on Consumers and Small Businesses. This paper is highly recommended.

ABSTRACT: This paper examines the impact of the reductions in interchange fees proposed by the the Federal Reserve Board on consumers and small businesses. We find that consumers and small business would face higher retail banking fees and lose valuable services as banks rationally seek to make up as much as they can for the debit interchange revenues they will lose under the Board’s proposal. The number of unbanked consumers would increase as lower-income households reduce the use of higher-priced accounts. Small businesses would lose in the first 24 months the proposed rules are in effect because of the offsetting increase in bank fees. Most of these small businesses do not accept debit cards and therefore would not have any offsetting benefits from lower interchange fees. Large retailers would receive a windfall.

March 9, 2011 | Permalink | Comments (0) | TrackBack (0)

New Developments in Ian Norris Case

Posted by D. Daniel Sokol

Ian Norris is the case that keeps on giving. Sue Reisinger's Corporate Counsel magazine article this week (see here) To recap, Norris was exonerated by unanimous jury verdicts of the substantive offenses of obstruction of justice. No witness -- all 8 government cooperating witnesess -- testified that they appeared before the grand jury. Nor did any witness testify that there was an agreement to obstruct the grand jury. The appeal thus is against the lesser charge of an inchoate conspiracy to obstruct of justice. The link to the response brief is here.

March 9, 2011 | Permalink | Comments (0) | TrackBack (0)

The Institutional Framework for Doing Sports Business: Principles of EU Competition Policy in Sports Markets

Posted by D. Daniel Sokol

Oliver Budzinski, University of Southern Denmark - Department of Environmental and Business Economics has written on The Institutional Framework for Doing Sports Business: Principles of EU Competition Policy in Sports Markets.

ABSTRACT: The competition rules and policy framework of the European Union represents an important institutional restriction for doing sports business. Driven by the courts, the 2007 overhaul of the approach and methodology has increased the scope of competition policy towards sports associations and clubs. Nowadays, virtually all activities of sports associations that govern and organize a sports discipline with business elements are subject to antitrust rules. This includes genuine sporting rules that are essential for a league, championship or tournament to come into existence. Of course, ‘real’ business or commercial activities like ticket selling, marketing of broadcasting rights, etc. also have to comply with competition rules.

Regulatory activities of sports associations comply with European competition rules if they pursuit a legitimate objective, its restrictive effects are inherent to that objective and proportionate to it. This new approach offers important orientation for the strategy choice of sports associations, clubs and related enterprises. Since this assessment is done following a case-by-case approach, however, neither a blacklist of anticompetitive nor a whitelist of procompetitive sporting rules can be derived. Instead, conclusions can be drawn only from the existing case decisions – but, unfortunately, this leaves many aspects open. With respect to business activities, the focus of European competition policy is on centralized marketing arrangements bundling media rights. These constitute cartels and are viewed to be anticompetitive in nature. However, they may be exempted from the cartel prohibition on efficiency and consumer benefits considerations. Here, a detailed list of conditions exists that centralized marketing arrangements must comply with in order to be legal. Although this policy seems to be well-developed at first sight, a closer look at the decision practice reveals several open problems. Other areas of the buying and selling behavior of sports associations and related enterprises are considerably less well-developed and do not provide much orientation for business.

March 9, 2011 | Permalink | Comments (1) | TrackBack (0)

Tuesday, March 8, 2011

Interview With Chairman Kumar of the Competition Commission of India

Posted by D. Daniel Sokol

A new interview of Chairman Kumar of the Competition Commission of India with interviewers Ioannis Lianos (UCL) and Daniel Sokol (University of Florida, ie, me), the co-edtiors of the Global Competition Law and Economics series with Stanford University Press is now available. Given recent developments on merger issues in India, it is worth a read.

March 8, 2011 | Permalink | Comments (0) | TrackBack (0)

6th American Conference Institute’s Pharmaceutical Antitrust Conference

Posted by D. Daniel Sokol

Day One, Tuesday May 10, 2011

8:15 Registration and Continental Breakfast

9:00 Co-Chairs’ Opening Remarks

Stephen C. Cipolla
Counsel
Merck & Co., Inc. (North Wales, PA)
Jonathan Wasserman
Vice President & Associate General
Bristol-Myers Squibb (Plainsboro, NJ)

9:15 Keynote Address: FTC Priorities in Pharmaceutical Antitrust Enforcement

Richard A. Feinstein
Director, Bureau of Competition
Federal Trade Commission (Washington, D.C.)

10:00 Morning Refreshment Break

10:15 Demystifying the Processes and Authority of the FTC

Tara Isa Koslov
Attorney Advisor to Commissioner Ramirez
Federal Trade Commission (Washington, D.C.)

Seth Silber
Partner
Wilson Sonsini Goodrich & Rosati (Washington, DC)

Recently, the authority and processes of the FTC have come under question. In this unique session, current and former FTC officials will share their inside knowledge and illuminate the way that the Commission operates, with special focus on the weapons that are at the agency’s disposal and how this power is exercised.

  • Understanding the current use of discovery devices by the FTC
    • potential scope of discovery requests
    • how the FTC can make use of its subpoena power
  • Analyzing recent debate over the extent of the FTC’s authority
    • judicial examination of the agency’s powers
  • Incorporating knowledge of FTC processes to work more effectively with the Commission
    • maintaining a working relationship while negotiating or discussing a case
    • setting an internal strategy that reflects current government policy direction and case selection criteria
    • recognizing the priorities and resources of the FTC investigative staff
    • weighing how to respond to requests
    • tactics for seeking closure of the matter without further FTC action

 

MERGERS AND ACQUISITIONS

11:15 The Changing Landscape of M&A Post Pfizer- Wyeth: What Can We Gleam From the Revised Merger Guidelines?

 

Michael Moiseyev
Assistant Director, Mergers 1, Bureau of Competition
Federal Trade Commission (Washington, DC)

Aryeh Friedman
Vice President and Assistant General Counsel
Pfizer Inc (Collegeville, PA)

Michael S. McFalls
Partner
Ropes & Gray LLP (Washington, DC)

  • Analyzing the changing landscape featuring fewer and larger pharmaceutical companies
    • impact of the current financial picture on deal activity and structuring
    • how antitrust considerations may change in response
  • Dissecting how the revised DOJ and FTC Horizontal Merger Guidelines change the prior approach to analyzing mergers between competitors
    • putting the guidelines in the proper context of recent
  • agency practices
    • movement away from a precise, step-by-step framework for analyzing horizontal mergers measuring market concentration
    • understanding the new analytical approach as set out in the Guidelines
  • Discerning the implications for analyzing potential M&A transactions
    • anticipating whether there will be greater scrutiny of transactions in the pharmaceutical industry
  • Weighing whether an uptick in merger activity will impact on enforcement activities
    • potential rise in use of disgorgement proceedings
  • Examining enforcement focus on recent vertical merger activity
  • Evaluating required divestitures

 

12:15 Networking Luncheon for Speakers and Delegates

Luncheon Address:

Deborah A. Garza
Partner
Covington & Burling LLP (Washington, DC)

Hosted By:

1:30 Product Acquisitions: Analyzing Market Definition, Power and Pricing

Melissa S. Barnes
Assistant General Counsel
Eli Lilly and Company (Indianapolis, IN)

Robert F. Leibenluft
Partner
HoganLovells LLP (Washington, DC)

  • FTC v. Lundbeck (Ovation): analyzing the considerations that were applied by the court to determine market definition in product acquisitions:
    • cross-elasticity and substitutability of drugs
    • industry or public recognition of the submarket as a separate economic entity
    • product characteristics and uses
    • manufacturing and production
    • defining the consumer
    • distinct prices
    • consumer sensitivity to price changes
    • specialized vendors
  • Understanding why the Court held what it did
    • dissecting the conclusions relating to market power and pricing
    • why some observers found the decision surprising
  • Assessing how courts hearing future challenges will consider market definition

 

Reverse Settlement Payment Agreements

2:15 Structuring Reverse Settlement Payment Agreements that Align with Current FTC Concerns

Michael B. Kades
Attorney Advisor to Chairman Jon Leibowitz
Federal Trade Commission (Washington, D.C.)

Jeffrey W. Brennan
Partner
Dechert LLP (Washington, DC)

Christopher Stomberg, PhD
Partner
Bates White (Washington, DC)

  • Current guidance on how to structure agreements that will pass antitrust scrutiny
    • identifying what factors you need to consider
    • considering whether a limited term or delayed license will be granted
    • amount of the payment/consideration to the generic company
    • complying with filing requirements
    • anticipating how “side deals” may be reviewed
    • incorporating understanding of recent standards applied in the judicial circuits

3:15 Afternoon Refreshment Break

3:30 Staying Abreast of the Evolving Judicial, Regulatory and Legislative Landscape for Reverse Settlement Payment Agreements

Christine White
Staff Attorney
Federal Trade Commission (New York, NY)

William F. Cavanaugh, Jr.
Partner
Patterson Belknap Webb & Tyler LLP (New York, NY)
Former Deputy Assistant Attorney General for Civil
Enforcement, Antitrust Division, Department of Justice

Mark S. Popofsky
Partner
Ropes & Gray LLP (Washington, DC)

In September 2010, the 2nd U.S. Circuit Court of Appeals denied a petition for a rehearing en banc of the case Arkansas Carpenters Health and Welfare Fund v. Bayer AG (Cipro). In a dissent, Judge Pooler stated her “vigorous criticism” of the precedent established by In re Tamoxifen Citrate Antitrust Litigation, calling the decision “incorrect” and said a rehearing was supported by “a majority of the States Attorneys General, the Federal Trade Commission, the American Medical Association, and an impressive array of consumer groups and academic commentators.” In February, the Northern District of Georgia in Androgel dismissed the FTC’s claims against Solvay, Watson and Parr Pharmaceuticals. This session will provide a platform to continue the debate as well as delving into important potential legislative developments on the horizon.

  • Translating and measuring the potential impact on the industry of specific components of the Preserve Access to Affordable Generics Act
    • enforcement authority given to the FTC under the proposed legislation
    • new settlement notification requirements
    • which settlements will be viewed as presumptively anticompetitive
    • burdens placed on settling parties to justify settlement
    • penalties under the Act and potential impact on marketing exclusivity periods
  • Anticipating how the industry will respond if the Act becomes law
    • impact on patent strategies and ANDA challenges
    • vague provisions in the Act that could be tested in litigation
  • Assessing whether by engaging in new internal rule-making the FTC may be able to strengthen its position on settlements
  • Analyzing the significance of recent decisions in the circuit courts
    • U.S. Court of Appeals for the Second Circuit’s denial of rehearing in Arkansas Carpenters Health and Welfare Fund v. Bayer AG (Cipro)
    • Androgel ruling in the 11th Circuit
  • Considering whether the antitrust analysis would be different were the settlement to follow after a product launch
  • Examining requests for stays of litigation by generics
    • brand company responses to this tactic
    • practical considerations to delay of litigation and anticipating when the court will agree to the stay
  • Anticipating potential Supreme Court review of:
    • Cipro
    • In re Tamoxifen Citrate Antitrust Litigation

 

4:30 Updating Life Cycle Strategies to Reflect Current Concerns Relating to Follow-On Biologics, REMS, and other Emerging Areas of Antitrust Focus

Bruce A. Pokras
Senior Corporate Counsel
Pfizer Inc. (Madison, NJ)

Pamela Jones Harbour
Partner
Fulbright & Jaworski L.L.P. (Washington, DC)
Former Commissioner, FTC

  • Looking at developing areas of FTC enforcement of “unreasonable restraints of trade” beyond the scope of traditional antitrust laws
  • Analyzing the impact of the 12 year market exclusivity period for follow-on biologics products on antitrust enforcement
    • predicting what the future litigation will look like and its impact on antitrust law
    • assessing how markets will be defined
    • anticipating how follow-on biologic cases will be treated in the courts by examining recent Hatch-Waxman holdings that may be a guide
    • comparison to treatment of Hatch-Waxman antitrust concerns
  • Addressing the impact of antitrust concerns on biologic pricing
  • Understanding the debate over patent protection for REMS and the potential for new antitrust issues
  • Evaluating whether complex and costly REMS strategies create a barrier to entry and minimize potential cost savings to consumers
  • Evaluating recent examples of product migration and understanding the litigation risks and impact on the patenting process
    • knowing what may trigger charges of patent hopping and applying takeaways from the Tricor investigation
  • Analyzing antitrust strategies and controversies concerning
  • Orange Book listing and de-listings
  • Discerning what tactics companies have pursued to avoid the forfeiture risks under the MMA
  • Anticipating where we are heading on authorized generic drugs
    • setting strategies while awaiting the FTC Final Report, and estimating what the implications of the final version will be on competition between brand and generic manufacturers

 

5:30 Conference Adjourns to Day 2

Day Two, Wednesday May 11, 2011

8:15 Continental Breakfast

9:00 Co-Chairs’ Remarks

9:15 Day 2 Keynote Address:

The Honorable J. Thomas Rosch
Commissioner
Federal Trade Commission (Washington, D.C.)

10:00 Morning Refreshment Break

10:15 Adjusting Pharmaceutical Strategies to Reflect Increased Industry Focus by Global Regulatory Authorities

Satish Sule
European Commission, DG Competition
Pharmaceuticals Task Force (Brussels, Belgium)

José Antonio B. M. Ziebarth
Professor of Antitrust, Getulio Vargas Foundation
Advisor to Brazilian Competition Tribunal (CADE)

Lars Kjølbye
Partner
Covington & Burling LLP (Brussels, Belgium)

Kristina Nordlander
Partner
Sidley Austin LLP (Brussels, Belgium)

Moderator:

C. Scott Hemphill
Professor of Law
Columbia Law School (New York, NY)

  • Looking at interaction between agencies around the world
  • Assessing whether EU enforcers are influencing the US authorities
  • Examining the underlying regulatory background or enforcement in the EU
    • how generic entry works in Europe
    • issues relating to life cycle management
  • Understanding the European enforcers’ authority and enforcement focus
    • manner in which recent raids in the EU were conducted
  • Impact of recent antimonopoly laws in India and China
  • Analyzing which other regions/countries may present unique enforcement challenges
    • Korea
    • Brazil
  • Anticipating where we are heading globally as foreign antitrust agencies gain experience
  • Minimizing your potential international antitrust exposure

 

11:30 Why Sham Claims Need to be Taken Seriously: Meeting the Increased Risk of Private Antitrust Litigation

Christopher L. Gaenzle
Assistant General Counsel - Litigation
Pfizer Inc. (New York, NY)

Sean Gates
Partner
Morrison & Foerster LLP (Los Angeles, CA)
Former Deputy Assistant Director, Anticompetitive Practices
Division, Bureau of Competition, FTC

John Roberti
Partner
Mayer Brown LLP (Washington, DC)

Moderator:

Jonathan Wasserman
Vice President & Associate General
Bristol-Myers Squibb (Plainsboro, NJ)

  • Comparing and contrasting theories put forth during patent infringement litigation or a government investigation that may open the door to follow-on private litigation
  • Pinpointing what factors from recent cases opened the door to sham litigation claims
    • assessing the probability of litigation resulting from Noerr-Pennington and Walker Process claims
  • Proactively anticipating when you will be drawn into a private suit and incorporating projections for damages and costs into an upfront project plan
    • weighing your level of risk and understanding when courts are awarding treble damages
  • Implementing patent prosecution protocols to help undermine future plaintiff ’s claims
  • Setting strategies for seeking dismissal of the claim in a sham litigation suit
    • understanding the applicable standards of proof
  • Defending claims by utilizing information related to government investigations and infringement litigation
  • Anticipating how plaintiffs will use evidence and information from prior litigation to seek to prevail on their claims
  • Staying ahead of the curve with regard to class actions on the horizon
  • Analyzing recent case law developments and the evolution of pleading standards for class actions in the antitrust context
    • current plaintiff tactics for class certification
    • defense tactics for creative attacks on the class
    • limiting the class so it is not nationwide
  • Implementing class action settlement strategies that control the risk of future litigation
  • Impact of the recent U.S. Supreme Court ruling denying arbitration of class antitrust claims
  • Concerns when participating as a named plaintiff in class actions
  • Anticipating the impact of public relations and reputation on litigation

12:30 Networking Luncheon for Speakers and Delegates

1:45 Factoring Health Care Reform into Compliant and Pro-Competitive Pricing and Distribution Strategies

Michael Wroblewski
Deputy Director, Office of Policy Planning
Bureau of Competition
Federal Trade Commission (Washington, DC)

James Dean
Partner
Covington & Burling LLP (Washington, DC)

Kenneth L. Glazer
Partner
K&L Gates (Washington, DC)
Former Deputy Director, Bureau of Competition, FTC

The passage of the Patient Protection and Affordable Care Act created heightened pricing and distribution risks for the
pharmaceutical industry. Coupled with existing challenges for overcoming risks of enforcement actions alleging predatory pricing and price manipulation, the industry is faced with new enforcement initiatives at the intersection of health care reform and antitrust law. This session will explore the strategies for traditional pricing and distribution challenges, as well as provide insight into solutions for withstanding intense scrutiny for PPACA compliance.

  • Avoiding antitrust scrutiny tied to exclusive dealings and product bundling with group purchasers
  • Understanding the changing dynamics of pricing structures for manufacturers and drug distributors stemming from the Patient Protection and Affordable Care Act (PPACA)
  • Proactively evaluating and implementing key strategies for pricing risks related to market power and potential market foreclosure including increased physician market concentration
  • Preparing for pending changes in PPACA related to Medicare and Medicaid reimbursement and the implications for increased fraud enforcement
  • Tackling resale maintenance, minimum advertised and average wholesale price
  • Counseling your client on the antitrust factors involved in discount and rebate programs for drug product bundles
  • Addressing antitrust risks of Accountable Care Organizations for hospital group purchasing and distribution
    • lessons learned from traditionally clinically integrated physician networks
    • structural variations impacting formularies
    • impact of physician-led integration on pricing

 

2:45 Afternoon Refreshment Break

3:00 Case Study: Structuring Collaborative Agreements to Proactively Minimize Potential Exposure to Antitrust Enforcement & Litigation

Mark J. Botti
Partner
Akin Gump Strauss Hauer & Feld LLP (Washington, DC)

David L. Meyer
Co-Chair of the Global Antitrust and Competition Law
Practice Group
Morrison & Foerster LLP (Washington, DC)
Former Principal Deputy Assistant Attorney General,
Antitrust Division, USDOJ

Complex collaborative agreements continue to attract the government’s antitrust scrutiny, and the industry’s increasing
use of co-promotions places companies at greater risk of enforcement. This session will examine a sample co-promotion agreement and delve into the use of advanced strategies for structuring agreements to minimize future antitrust exposure.

  • Considering different structuring options when negotiating an international co-promotion to preserve competition
  • Dissecting the deal sheet and understanding why the deal is structured in a certain way
  • Understanding how the deal will be scrutinized by antitrust authorities
  • Identifying the red flags: determining which aspects of a multi-faceted collaborative agreement are most likely to trigger an antitrust probe
    • ensuring the international aspects of the deal are factored into your strategies
  • Drafting terms that will overcome challenges of price fixing or market division
    • crafting exclusivity and non-compete provisions that will withstand scrutiny
    • making use of restrictions that can be imposed on a licensee without triggering antitrust scrutiny
  • Incorporating lessons from recent industry litigation into your collaboration strategy
    • recognizing what may serve as evidence in future antitrust litigation
  • Preparing for differing antitrust enforcement issues for majority and minority stakeholders in a joint venture

 

4:00 Examining the Potential Acquisition of a Generic Manufacturer

William H. Rooney
Partner
Willkie Farr & Gallagher LLP (New York, New York)

Michelle H. Seagull
Partner
Axinn Veltrop Harkrider LLP (Hartford, CT)

This session will provide practical direction for navigating the antitrust issues that may be raised when a company seeks to acquire a generic drug maker. We will examine how to anticipate what anticompetitive issues the FTC may raise relating to the deal, and apply relevant takeaways from the Teva/Barr merger. Points of discussion will include:

  • Examining how the FTC will analyze whether the combined companies could exercise unilateral market power
  • Making arguments for and against whether there is a likelihood that consumers will pay higher prices for certain drugs
  • Assessing whether there may be entry into the relevant markets that would counteract any anticompetitive impact of the acquisition
  • Likelihood of the use of FTC enforcement authority to require divestiture of rights to certain drugs
  • Negotiating a consent order with the FTC
  • Finding acceptable acquirers of assets that must be divested
  • Meeting requirements for assisting buyers with assets transfers and obtaining necessary FDA approvals

 

5:00 Conference Concludes

March 8, 2011 | Permalink | Comments (0) | TrackBack (0)

A Set of Five Regulations to Effectively Implement the Anti-Monopoly Law

Posted by D. Daniel Sokol

Anti-Monopoly and Anti-Unfair Competition Enforcement Bureau at the State Administration for Industry and Commerce, P.R.C. provides A Set of Five Regulations to Effectively Implement the Anti-Monopoly Law.

ABSTRACT: Antitrust laws are essential to a market economy. The effective
implementation of China's Anti-Monopoly Law ("AML") is of immense significance
for safeguarding fair competition, strengthening market dynamics and
competition, protecting the interests of consumers and the public, and promoting
the healthy development of the socialist market economy.

The State Administration for Industry and Commerce ("SAIC")-one of the
antitrust agencies designated by the State Council-has enacted a set of five
antirust regulations in order to guarantee the smooth implementation of the
AML.

On December 31, 2010, SAIC published a set of three substantive regulations
implementing the AML: the Regulation on the Industry and Commerce Authorities
Prohibiting Conduct Involving Monopoly Agreements ("SAIC Monopoly Agreements
Regulation"), the Regulation on the Industry and Commerce Authorities
Prohibiting Conduct Abusing a Dominant Market Position ("SAIC Abuse of Dominance
Regulation"), and the Regulation on the Industry and Commerce Authorities
Prohibiting Conduct Abusing Administrative Powers to Eliminate or Restrict
Competition ("SAIC Abuse of Administrative Powers Regulation"). These three
substantive regulations formally entered into force on February 1, 2011.

Prior to this, on May 26, 2009, SAIC published two regulations implementing
the AML's procedural aspects-i.e., the SAIC Regulation on the Procedure
for Preventing Conduct Abusing Administrative Powers to Eliminate or Restrict
Competition ("SAIC Administrative Powers Procedural Regulation") and the SAIC
Regulation on the Procedure for Investigation and Handling of Cases of Monopoly
Agreements and Abuses of a Dominant Market Position ("SAIC Agreements and Abuses
Procedural Regulation"). These two regulations became formally effective on July
1, 2009.

March 8, 2011 | Permalink | Comments (0) | TrackBack (0)

Rigid Pricing and Rationally Inattentive Consumer

Posted by D. Daniel Sokol

Filip Matejka (Economics Institute - Czech Republic) analyzes Rigid Pricing and Rationally Inattentive Consumer.

ABSTRACT: This paper proposes a mechanism leading to rigid pricing as an optimal strategy. It applies a framework of rational inattention to study the pricing strategies of a monopolistic seller facing a consumer with limited information capacity. The consumer needs to process information about prices, while the seller is perfectly attentive. It turns out that the seller chooses to price discretely even for a continuous range of unit input costs, i.e. charges a finite set of different prices only. The price usually stays constant when unit input cost changes only a little. The seller does so to provide the consumer with easily observable prices and thus stimulate her to consume more. In the model's dynamic version, this mechanism implies that prices respond to cost shocks with a delay.

March 8, 2011 | Permalink | Comments (0) | TrackBack (0)

The Sound of One Hand Clapping: The 2010 Merger Guidelines and the Challenge of Judicial Adoption

Posted by D. Daniel Sokol

Judd E. Stone, International Center for Law and Economics and Joshua D. Wright, George Mason University School of Law discuss The Sound of One Hand Clapping: The 2010 Merger Guidelines and the Challenge of Judicial Adoption.

ABSTRACT: There is ample justification for the consensus view that the Horizontal Merger Guidelines have proven one of antitrust law’s great successes in the grounding of antitrust doctrine within economic learning. The foundation of the Guidelines’ success has been its widespread adoption by federal courts, which have embraced its rigorous underlying economic logic and analytical approach to merger analysis under the Clayton Act. While some have suggested that the Guidelines’ most recent iteration might jeopardize this record of judicial adoption by downplaying the role of market definition and updating its unilateral effects analysis, we believe these updates are generally beneficial and include long-overdue shifts away from antiquated structural presumptions in favor of analyzing competitive effects directly where possible. However, this article explores a different reason to be concerned that the 2010 Guidelines may not enjoy widespread judicial adoption: the 2010 Guidelines asymmetrically update economic insights underlying merger analysis. While the 2010 Guidelines’ updated economic thinking on market definition and unilateral effects will likely render the prima facie burden facing plaintiffs easier to satisfy in merger analysis moving forward, and thus have significant practical impact, the Guidelines do not correspondingly update efficiencies analysis, leaving it as largely as it first appeared 13 years earlier. We discuss two well-qualified candidates for "economic updates" of efficiencies analysis under the Guidelines: (1) out-of-market efficiencies and (2) fixed cost savings. We conclude with some thoughts about the implications of the asymmetric updates for judicial adoption of the 2010 Guidelines.

March 8, 2011 | Permalink | Comments (0) | TrackBack (0)

Dominance & Pricing in Europe Conference 2011

Posted by D. Daniel Sokol

The Dominance & Pricing Conference 2011 offers a first-class legal review of key Article 102 developments, recent case law and their practical impacts on your organsiation.

Despite updates, guidelines and clarification of other areas of competition law, Article 102, and the questions as to when a company may be found to have abused a dominant position or a discount may be considered unlawful remain as challenging as ever.

IBC Legal Conferences is therefore proud to announce its 15th anniversary Dominance & Pricing in Europe event highlighting major legal complexities and legal developments in relation to Article 102 and pricing.

Download the latest programme for the Dominance & Pricing in Europe event.

Line-up of expert speakers for the Dominance & Pricing in Europe forum:


To be expertly chaired by:

Simon Holmes,
Head of EU & Competition,
SJ Berwin LLP, UK

Key speakers include:

Claude Rakovsky, Head of Unit, Antitrust and Mergers Policy and Scrutiny, DG Competition, European Commission, Belgium

Jean-Yves Art, Professor, College of Europe & Associate General Counsel, Microsoft, Belgium

Dr Edwin Sonnenschein, Head Legal Diabetes Care, Roche Diagnostics GmbH, Germany

Lars Kjølbye, Partner, Covington & Burling LLP, Belgium

Jacquelyn MacLennan, Partner, White & Case LLP, Belgium

Benoît Durand, Partner, RBB Economics, Belgium

Mike Walker, Vice President, Charles River Associates, UK

Dr Alexander Rinne, Partner, Milbank, Tweed, Hadley & McCloy LLP, Germany

Marc Lévy, Partner, Head of EU, Competition & Commercial Department, SJ Berwin LLP, France

Aidan Synnott, Partner, Paul, Weiss, Rifkind, Wharton & Garrison LLP, USA

John Schmidt, Partner, Shepherd & Wedderburn LLP, UK

March 8, 2011 | Permalink | Comments (0) | TrackBack (0)

Oligopolistic Screening and Two-way Distortion

Posted by D. Daniel Sokol

Michela Cella (Department of Economics, University Of Milan, Bicocca) and Federico Etro (Department of Economics, University Of Venice, Ca’ Foscari) describe Oligopolistic Screening and Two-way Distortion.

ABSTRACT: We analyze the choice of incentive contracts by oligopolistic firms that compete on the product market. Managers have private information and in the first stage they exert cost reducing effort. In equilibrium the standard "no distortion at the top" property disappears and two way distortions are optimal. We extend our analysis to other informational, contractual and competitive settings.

March 8, 2011 | Permalink | Comments (0) | TrackBack (0)

Endogenous Market Structures and Contract Theory: Delegation, principal-agent contracts, screening, franchising and tying

Posted by D. Daniel Sokol

Federico Etro (Department of Economics, University Of Venice Cà Foscari) has posted Endogenous Market Structures and Contract Theory: Delegation, principal-agent contracts, screening, franchising and tying.

ABSTRACT: I study the role of unilateral strategic contracts for firms active in markets with price competition and endogenous entry. Traditional results change substantially when the market structure is endogenous rather than exogenous. They concern 1) contracts of managerial delegation to non-profit maximizers, 2) incentive principal-agent contracts in the presence of moral hazard on cost reducing activities, 3) screening contracts in case of asymmetric information on the productivity of the managers, 4) vertical contracts of franchising in case of hold-up problems and 5) tying contracts by monopolists competing also in secondary markets. Firms use always these contracts to strengthen price competition and manage to obtain positive profits in spite of free entry.

March 8, 2011 | Permalink | Comments (0) | TrackBack (0)

Monday, March 7, 2011

FTC Releases The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition

Posted by D. Daniel Sokol

The FTC has released The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition.

According to the press release:

The new report recognizes that patents play a critical role in encouraging innovation. At the same time, it observes that some strategies by patent holders risk distorting competition and deterring innovation. This is especially true, the report concludes, for activity driven by poor patent notice, and by remedies that do not align the compensation received by patent holders for infringement with the economic value of their patented inventions.

To address these issues, the report first recommends improving policies relevant to the patent notice function through actions by the courts and the Patent and Trademark Office. Clear notice of what a patent covers promotes innovation by encouraging collaboration, technology transfer, and design-around. But poor notice undermines these benefits if potential licensees cannot find relevant patents, or if companies hesitate to invest in technology because the scope of others’ patents are unclear. Poor patent notice also can distort competition by forcing firms to design products and make investments with incomplete knowledge of the cost and availability of different technologies. The report suggests mechanisms to improve the public’s ability to identify relevant patents, to understand the scope of patent claims, and to predict the breadth of claims that are likely to emerge from patent applications.

The FTC’s recommendations to improve patent notice include:

  • making patent claims more definite and improving the utility of descriptions
    in patents for delineating their boundaries;
  • enhancing the patent examination record as a source for interpreting claim
    scope; and
  • more fully incorporating consideration of third parties’ ability to predict
    the potential breadth of evolving claims into the administrative and judicial
    review of the written descriptions of patent applications.

 

The report also explains that patent remedies that align compensation of
patent holders with the economic value of their patented inventions are
important for both innovation and competition. Patent damages that
under-compensate patentees for infringement can deter innovation. But
overcompensation can lead to higher prices and encourage speculation in patent
rights, which also deters innovation.

 

The report makes recommendations to courts that would ground damages
calculations and injunction analysis in economic principles that recognize
competition among patented technologies.

 

The FTC’s recommendations to courts to improve patent remedies law
include:

 


  • capping reasonable royalty damages at the amount a willing licensee would
    pay, which may be determined by the value of the invention over alternative
    technologies;
  • increasing the role of district courts in excluding unreliable expert
    testimony on damages from trial; and
  • incorporating concerns into the injunction analysis about the leverage that
    an injunction may give a patentee to obtain royalties exceeding the economic
    value of an invention.

March 7, 2011 | Permalink | Comments (0) | TrackBack (0)

NDRC's Antitrust Practice

Posted by D. Daniel Sokol

Zhou Zhigao & Wan Jiang (National Development and Reform Commission, P.R.C.) discusses NDRC's Antitrust Practice.

ABSTRACT: Over two years have passed since the Anti-Monopoly Law ("AML") entered into
effect on August 1, 2008. According to the AML and related provisions issued by
the State Council, the National Development and Reform Commission ("NDRC"), the
Ministry of Commerce ("MOFCOM"), and the State Administration for Industry and
Commerce ("SAIC") were all appointed as antitrust enforcement authorities in
China. Among those authorities, NDRC is responsible for investigating and
sanctioning price monopoly conduct in accordance with the law, including price
monopoly agreements and abuses of a dominant market position by companies, or
abuses of administrative powers to eliminate or restrict competition.

Within NDRC, the Department of Price Supervision has assumed responsibilities
for antitrust policy and enforcement. At the same time, in accordance with the
related provisions of the AML, NDRC has already delegated powers to the price
authorities at the provincial level throughout the country. This delegation
allows the provincial authorities to carry out the anti-price monopoly
enforcement work within their respective administrative jurisdictions in
accordance with the provisions of the AML, and to cooperate with NDRC in their
anti-price monopoly investigations. Thus, a two-level anti-price monopoly
enforcement system has been established at the national and provincial
level.

In addition, NDRC and the provincial departments may further delegate powers
within their respective fields of authority to the price departments at a lower
level of government to carry out investigations in relation to specific cases of
suspected price monopoly conduct.

March 7, 2011 | Permalink | Comments (0) | TrackBack (0)

Strategic Advertising for Entry Deterrence Purposes

Posted by D. Daniel Sokol

Paolo Coccorese (University of Salerno - Econ) explores Strategic Advertising for Entry Deterrence Purposes.

ABSTRACT: This paper evaluates the possible effects of advertising on conditions of entry in a market with one incumbent and one potential entrant. Through a game-theoretic framework, it is shown that the use of pre-entry advertising expenditures (which are supposed to exhibit diminishing returns) may discourage entry even when firms behave rationally and face the same conditions of cost and demand.

March 7, 2011 | Permalink | Comments (0) | TrackBack (0)

Competitive mixed bundling of vertically differentiated products

Posted by D. Daniel Sokol

Illtae Ahn (Department of Economics, Chung-Ang University, Seoul, Republic of Korea) and Kiho Yoon (Department of Economics, Korea University, Seoul, Republic of Korea) address Competitive mixed bundling of vertically differentiated products.

ABSTRACT: We examine mixed bundling in a competitive environment that incorporates vertical product differentiation. We show that, compared to the equilibrium without bundling, (i) prices, profits and social welfare are lower, whereas (ii) consumer surplus is higher in the equilibrium with mixed bundling. In addition, the population of consumers who purchase both products from the same firm is larger in the equilibrium with mixed bundling. Further, when the quality gap between brands narrows under no bundling and symmetric mixed bundling, prices and profits decrease but social welfare and consumer surplus increase. When quality differentiation is asymmetric across products, however, complicated effects occur on prices and profits due to strategic interdependence that mixed bundling creates.

March 7, 2011 | Permalink | Comments (0) | TrackBack (0)

Competition and R&D Cooperation with Universities and Competitors

Posted by D. Daniel Sokol

Thomas Bolli, KOF ETHZ and Martin Woerter, ETH Zurich, Swiss Economic Institute (KOF) address Competition and R&D Cooperation with Universities and Competitors.

ABSTRACT: This paper analyzes the relationship between competition and R&D cooperation with universities and competitors. Our simple model predicts that more competitors reduce the incentives for horizontal cooperation as it diminishes the gains from “collusion”. Assuming that the value of synergies and spillovers created by cooperation depends on competition intensity reveals two distinct and opposing incentives for cooperation. While synergies foster R&D cooperation, spillovers may hinder cooperation. We mainly hypothesize that university cooperation corresponds to product innovation and hence quality competition, while horizontal cooperation lead to process innovations and therefore relates to price competition. We test these hypotheses based on Swiss firm-level panel data controlling for simultaneity of cooperation decisions and endogeneity of competition. Our empirical analysis supports the relevance of distinguishing between competition dimensions and cooperation partners, respectively. We find that price competition matters for both university and horizontal cooperation and it takes the form of an inverted U-shape. On the contrary, quality competition only matters for university cooperation and the relationship shows a U-form. Moreover we see that the number of principal competitors is significantly related only to cooperation between competitors and the relationship shows an inverted U-form. Hence, markets with a medium number of competitors are more receptive for horizontal cooperation. In sum these findings advance our understanding of the relationship between innovation and competition policy.

 

March 7, 2011 | Permalink | Comments (0) | TrackBack (0)

Antitrust Class Actions in the European Union: Latest Developments and the Need for a Uniform Regime

Posted by D. Daniel Sokol

Veronica Pinotti and Dana Stepina (both McDermott Will) discuss Antitrust Class Actions in the European Union: Latest Developments and the Need for a Uniform Regime.

ABSTRACT: The evolution of class actions continues to feature prominently on Europe's competition law landscape. At European Union (EU) level, the European Commission (Commission) has supported private enforcement vocally, going as far as drafting legislation to mandate an EU-wide class action mechanism although withdrawing it from the agenda at the last minute. Nonetheless, the Commission is preparing a new round of discussions in order to finalise the ongoing debate on the harmonisation of class action rules in Europe. In the meantime, certain EU Member States such as Italy have implemented their own national class action legislation.

March 7, 2011 | Permalink | Comments (0) | TrackBack (0)

Recent Judgments Regarding Transparency and Access to Documents in the Field of Competition Law: Where Does the Court of Justice of the EU Strike the Balance?

Posted by D. Daniel Sokol

Gaëtane Goddin(Facultés universitaires Saint-Louis and administrator at DG Competition) asks Recent Judgments Regarding Transparency and Access to Documents in the Field of Competition Law: Where Does the Court of Justice of the EU Strike the Balance?

ABSTRACT: After a brief overview of the rules applicable to access to the documents under the Transparency Regulation (1049/2001), and those applicable to access to the Commission file under competition law, this article analyses the recent case law of the Court of Justice of the EU concerning the application of the Transparency Regulation in competition cases. It argues that there is tension between the recent case law of the General Court and that of the Court of Justice, as the former appears to interpret the exceptions to the right of access to documents strictly while the latter appears to take a more holistic approach and recognises the need to interpret these exceptions so as not to deprive other rules (such as the rules on access to the file in State aid cases, the data protection rules, the Statute of the Court of Justice and the EU Courts' Rules of Procedure) of their ‘effet utile’.

March 7, 2011 | Permalink | Comments (0) | TrackBack (0)