Antitrust & Competition Policy Blog

Interlocking Directorates Handbook

Posted by D. Daniel Sokol

Interlocking Directorates Handbook

This is a new handbook on Section 8 of the Clayton Act. This new Handbook provides history, background, and practical guidance on the application of Section 8 of the Clayton Act, which regulates "corporate interlocks"--where two competing corporations share one or more directors in common. The Handbook provides a concise history of Section 8, discusses common procedural issues that arise in litigation involving Section 8 claims, summarizes the interplay between Section 8 and other regulatory schemes, and finally, discusses practical guidance and common pitfalls for practitioners.

R&D Collaboration with Uncertain Intellectual Property Rights

Posted by D. Daniel Sokol

Dirk Czarnitzki, Centre for European Economic Research (ZEW), Catholic University of Leuven (KUL), Katrin Hussinger, Centre for European Economic Research (ZEW), Maastricht University - Department of Organization & Strategy, Catholic University of Leuven (KUL), and Cédric Schneider, Copenhagen Business School - Department of Economics address R&D Collaboration with Uncertain Intellectual Property Rights.

ABSTRACT: Patent pendencies create uncertainty in research and development (R&D) collaboration agreements, resulting in a threat of expropriation of unprotected knowledge by potential partners, reduced bargaining power and enhanced search costs. In this paper, we show that - depending of the type of partner - uncertain intellectual property rights (IPR) lead to reduced collaboration between firms and may hinder the production of knowledge. This has implications for technology policy as R&D collaborations are exempt from anti-trust legislation in order to increase R&D in the economy. We argue that a functional IPR system is needed for successful utilization of this policy.

Does Anti-Competitive Regulation Matter for Productivity? Evidence from European Firms

Posted by D. Daniel Sokol

Jens Matthias Arnold, Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO), Giuseppe Nicoletti, Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO), and Stefano Scarpetta, Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO), World Bank - Social Protection Unit (HDNSP), Institute for the Study of Labor (IZA) ask Does Anti-Competitive Regulation Matter for Productivity? Evidence from European Firms.

ABSTRACT: Using firm-level data for a sample of European countries, we focus on the effects that product-market regulations have on firm-level TFP growth. We proxy regulatory burdens using the OECD indicators of sectoral non-manufacturing regulations. These allow accounting for both the direct effects of sectoral regulation on within-sector performance and the indirect effects of sectoral regulation on firms in other sectors through intersectoral input-output linkages. Our econometric specification of TFP is based on a "neo-Schumpeterian" empirical specification in which productivity improvements depend on growth at the global technological frontier and a catch up term. We assume that regulation can affect productivity growth both directly and by slowing down the rate of catch up. We find that product market regulations that curb competitive pressures tend to reduce the productivity performance of firms. The negative effect is particularly strong on firms characterised by an above-average productivity growth. Domestic regulations that affect all regulated firms in the same way seem to be more important than border regulations in this context.

CC & OFT publish quick guide on merger assessment

Posted by D. Daniel Sokol

The CC and OFT have published a quick guide on merger assessment.

Some Observations on the Treatment of Standardization Agreements in the EC Guidelines on Horizontal Cooperation Agreements

Posted by D. Daniel Sokol

Mathew Heim (Qualcomm) offers Some Observations on the Treatment of Standardization Agreements in the EC Guidelines on Horizontal Cooperation Agreements.

ABSTRACT: Guidelines issued by the European Commission can provide an important complement to the modernization of Europe's competition regime. Instituted by Regulation 1/2003, modernization did away with the system of prior notification to the European Commission competition authority, making undertakings themselves responsible for assessing the legality of their business practices. Guidelines are thus increasingly important, as business practices become more complex and as the law requires an effects-based, rather than per se, approach. Guidelines also provide guidance to national competition regimes and courts, which may apply European competition law under the modernization regime.

The function of guidelines is therefore not to create new law, but to provide undertakings with a level of clarity and legal certainty as to what the existing law prescribes. It is also that true guidelines must remain at a level of generality, given that they cannot cover all permutations. In this light and due to their legal nature, guidelines are not capable of having direct legal effects on undertakings (save where they create legitimate expectations). This background is important is assessing the recently adopted Guidelines on Horizontal Cooperation Agreements and notably Chapter 7 of those Guidelines which addresses Standardization Agreements.

The following paper makes some observations on this chapter of the new Guidelines.

 



Freedom to Trade and the Competitive Process

Posted by D. Daniel Sokol

Aaron S. Edlin, University of California at Berkeley - Law and Joseph Farrell, University of California, Berkeley - Department of Economics explore Freedom to Trade and the Competitive Process.

ABSTRACT: Although antitrust courts sometimes stress the competitive process, they have not deeply explored what that process is. Inspired by the theory of the core, we explore the idea that the competitive process is the process of sellers and buyers forming improving coalitions. Much of antitrust can be seen as prohibiting firms’ attempts to restrain improving trade between their rivals and customers. In this way, antitrust protects firms’ and customers’ freedom to trade to their mutual betterment.

 

Ian Norris to go to Jail According to the Third Circuit

Posted by D. Daniel Sokol

According to a Third Circuit ruling yesterday (see here), Ian Norris is going to jail for price fixing. The negative ruling against Ian Norris may have significant repercussions more broadly about the role of outside counsel. For more coverage, see here.

The First-Order Approach to Merger Analysis

Posted by D. Daniel Sokol

Sonia Jaffe, Harvard University - Department of Economics and Eric Glen Weyl, Harvard University - Society of Fellows, Toulouse School of Economics offer The First-Order Approach to Merger Analysis.

ABSTRACT: In a general static oligopoly setting, we derive approximations to the changes in prices and welfare generated by a merger using only information local to the pre-merger equilibrium. Our Generalized Pricing Pressure (GePP) extends the Upward Pricing Pressure (UPP) of Werden (1996), Farrell and Shapiro (2010a) and the new US and UK horizontal merger guidelines to allow for non-Bertrand conduct and general cost functions. GePP differs from UPP in two ways: it uses the appropriate diversion ratio when other prices do not stay constant and incorporates the change in accommodating reactions sparked by the merger. The effect this pricing pressure has on prices is determined by the merger pass-through matrix, a mixture of the pre- and post-merger rates at which changes in marginal costs are passed through to prices. We show the conditions under which merger pass-through is close to both post-merger pass-through and, more importantly for implementation, pre-merger pass-through. The resulting change in prices can be converted into estimates of changes in welfare and consumer surplus. Our analysis thus demonstrates that the “first-order” approach underlying the new guidelines, with some adjustments, provides a robust quantitative approximation to the consumer surplus effects of mergers. It also illustrates how, more generally, apparently discrete changes (such as mergers) that have small effects on relevant outcomes may be approximated by classical comparative statics methods.

Deterrence, Recidivism and European Cartel Fines

Posted by D. Daniel Sokol

Cento Veljanovski, Case Associates discusses Deterrence, Recidivism and European Cartel Fines.

ABSTRACT: Based on an analysis of cartel prosecutions since 2007, the way the Commission has built up its fines in practice is assessed. The fines are compared with those imposed by the Commission during 1999-2006. The main findings are that while fines have increased significantly, this is due to less generous reductions of fines under the Commission’s leniency programme. Further, the Commission has not followed the guidelines – fines are generally lower than set out in the guidelines, and it has been overly generous to recidivists setting the fines low and ignoring over 70% of prior convictions.

The New EU Competition Rules for Co-operation Between Competitors of December 2010

Posted by D. Daniel Sokol

Donncadh Woods (DG Comp) explores The New EU Competition Rules for Co-operation Between Competitors of December 2010.

ABSTRACT: On December 14, 2010, the European Commission adopted revised EU competition rules for production agreements, research and development agreements, and other types of commercial cooperation agreements between competing undertakings. The revised block exemption regulations for research and development agreements ("R&D BER") and specialization agreements ("Specialization BER") and the revised Horizontal Guidelines entered into force on January 1, 2011. They replace the predecessor R&D BER, Specialization BER, and Horizontal Guidelines that were adopted in 2000.

While preserving the existing general approach for assessing such agreements under EU competition law, the revised texts significantly change the predecessor block exemption regulations and Horizontal Guidelines. The final revised texts also incorporate several improvements that stakeholders suggested in their comments on the drafts of the two block exemption regulations and the Horizontal Guidelines that the Commission published for public consultation in May 2010.

Even if not perfect on all accounts, the revised texts overall have to be welcomed as they provide a more coherent and clearer framework for the assessment of R&D and production agreements under EU competition law. They remedy many of the instances of legal uncertainty that arose under the predecessor rules and broaden the scope of the BERs, thus allowing companies more flexibility to structure their cooperation without running the risk of falling outside the safe harbor created by the BERs

Dynamic Competition in the Newspaper Industry

Posted by D. Daniel Sokol

Christine Varney (DOJ) has a new speech on Dynamic Competition in the Newspaper Industry.

Competition Policy And Regulation: Recent Developments in China, the US and Europe

Posted by D. Daniel Sokol

Competition Policy And Regulation

Recent Developments in China, the US and Europe

Edited by Michael Faure, Professor of Comparative and International Environmental Law, Maastricht University and Professor of Comparative Private Law and Economics, Erasmus University Rotterdam, The Netherlands and Xinzhu Zhang, Chinese Academy of Social Sciences, China

Contents: Introduction/Editorial Foreword Michael Faure and Zhang Xinzhu PART I: GENERAL ISSUES 1. The Uneasy Case for Competition Law and Regulation as Decisive Factors in Development: Some Lessons for China Thomas Ulen 2. Study on Frontier Issues and the Future Road of Regulation Over Monopoly Agreements in China Huang Yong and Zhang Zhe 3. Critical Issues in the Enforcement of the Anti-monopoly in China: A Law and Economics Perspective Roger Van den Bergh and Michael G. Faure PART II: COMPETITION LAW AND ADMINISTRATIVE MONOPOLIES 4. The Measure of Regional Administrative Monopoly in China Liangchun Yu and Donghua Yu 5. Administrative Monopolies, State Aid, Barriers to Entry and Market Integration: Challenges for the Chinese Anti-monopoly Law Stefan Weishaar 6. Regulation and Corporate Governance of State Owned Enterprises: Issues for Improved Efficiency and Competitiveness and Lessons for China Luis Alberto Andres and Jose Luis Guasch PART III: INDUSTRIAL AND PROFESSIONAL REGULATION 7. The Industrial Regulation of China: Basic Experiences and Lessons Fu-Liang Chen 8. Professional Licensing and Self-regulation in Europe and China: A Law and Economics Perspective Niels Philipsen PART IV: MERGER CONTROL 9. Chinese Merger Control: Patterns and Implications Xinzhu Zhang and Vanessa Yanhua Zhang 10. Revising the Horizontal Merger Guidelines: Lessons from the US and the EU Richard Gilbert and Daniel L. Rubinfeld Part V: SUBSTANTIVE COMPETITION LAW: CARTELS, ABUSE OF DOMINANCE AND PREDATION 11. Monopoly Agreements and Abuse of Dominance: Somebody Marks About the Substantive Rules Roberto Pardolesi 12. The Legal Regime Preventing Predation in the People’s Republic of China: A Law and Economics Analysis Stefan Weishaar PART VI: CONCLUSIONS: FUTURE LOOK 13. Concluding Remarks Michael Faure and Zhang Xinzhu

University of Florida Law Review Dunwoody Lecture - The Constitutionality of the Wall Street Reform Act

Posted by D. Daniel Sokol

Competition and Innovation: The Inverted-U Relationship Revisited

Posted by D. Daniel Sokol

Aamir Rafique Hashmi, National University of Singapore has written on Competition and Innovation: The Inverted-U Relationship Revisited.

ABSTRACT: I re-examine the inverted-U relationship between competition and innovation (originally modeled and tested by Aghion et al. (2005)) by using data from publicly traded manufacturing firms in the US. I control for the possible endogeneity of competition by using various measures of foreign competition as instruments. I find a positive relationship between competition (as measured by the inverse of markups) and innovation (as measured by citation-weighted patents). The positive relationship is robust to many alternative assumptions and specifications. To reconcile the positive relationship in the US data with the inverted-U relationship that Aghion et al. (2005) find in the UK data, I modify their theoretical model and show that the modified model can explain both positive and inverted-U relationships. The key theoretical assumption is that the US manufacturing industries are technologically more neck-and-neck than their counterparts in the UK. There is some, though not strong, support for this assumption in the data.

 

The Revised EU Competition Rules for Production and R&D Agreements Create a More Coherent Framework of Assessment and Provide Better Guidance to Companies

Posted by D. Daniel Sokol

Axel Gutermuth (Arnold & Porter) argues The Revised EU Competition Rules for Production and R&D Agreements Create a More Coherent Framework of Assessment and Provide Better Guidance to Companies.

ABSTRACT: On December 14, 2010, the European Commission adopted revised EU competition rules for production agreements, research and development agreements, and other types of commercial cooperation agreements between competing undertakings. The revised block exemption regulations for research and development agreements ("R&D BER") and specialization agreements ("Specialization BER") and the revised Horizontal Guidelines entered into force on January 1, 2011. They replace the predecessor R&D BER, Specialization BER, and Horizontal Guidelines that were adopted in 2000.

While preserving the existing general approach for assessing such agreements under EU competition law, the revised texts significantly change the predecessor block exemption regulations and Horizontal Guidelines. The final revised texts also incorporate several improvements that stakeholders suggested in their comments on the drafts of the two block exemption regulations and the Horizontal Guidelines that the Commission published for public consultation in May 2010.

Even if not perfect on all accounts, the revised texts overall have to be welcomed as they provide a more coherent and clearer framework for the assessment of R&D and production agreements under EU competition law. They remedy many of the instances of legal uncertainty that arose under the predecessor rules and broaden the scope of the BERs, thus allowing companies more flexibility to structure their cooperation without running the risk of falling outside the safe harbor created by the BERs.

DO PRICE INCREASES WHILE DEMAND IS FALLING INDICATE COLLUSION?

Posted by D. Daniel Sokol

Chin W. Yang, William N. Trumbull, Brian J. Cushing, and Ming J. Hwang ask DO PRICE INCREASES WHILE DEMAND IS FALLING INDICATE COLLUSION?

ABSTRACT: Because of difficulties in identifying direct evidence of collusive activity on the part of suspected firms under antitrust law, the courts in the past have been forced to rely heavily on indirect evidence, such as pricing behavior, in rendering their decisions. Recently, with the smoking-induced health costs and related class-action litigation against the tobacco industry, the courts have become an important forum for regulating tobacco products. The purpose of this article is to investigate theoretically the pricing behavior of a cartel (or price leader) under conditions of decreasing demand and falling costs with a formal proof and numerical simulations. In particular, this article generalizes and examines both the normal case and unusual case under these circumstances. The model thus derived can be used as a more general theoretical basis for antitrust enforcement. It applies directly to the tobacco industry in which promotional activities, rather than prices, are regulated

Thoughts on AT&T/T-Mobile Merger and the Breakup Fee

Posted by D. Daniel Sokol

The thing that jumps out at me is a $3 billion break up fee to T-Mobile. This means in my mind that any merger challenge will be fully litigated out. That is, the parties seem to have lots of confidence in the merger. Personally, I am not convinced it is such a slam dunk. Put differently, I would love to be the lead attorney of the government case because this is the kind of case (where I give the government a 55-45 chance of winning the antitrust case) that can make a government lawyer's career.

But is a success by the merging parties actually a success? If a "success" means the deal goes through, I would suggest we redefine what success means as it may come at the expense of significant divestitures imposed either by DOJ or the FCC (hello Jon Baker) -- assuming that the parties can find someone who can buy the divested assets.

The session break hallway discussions at the ABA Antitrust Section Spring Meeting next week will be a lot more lively than I would have anticipated just three days ago. I also think this deal seems to be employing lots of attorneys in DC for the merging parties and other interested parties.

Judge Chin Says No to Google Books Settlement

Posted by D. Daniel Sokol

Judge Chin says no to the Google Books Settlement. The opinion is here.

In Search of a Competition Law Fit for Developing Countries

Posted by D. Daniel Sokol

Eleanor M. Fox, New York University School of Law is In Search of a Competition Law Fit for Developing Countries.

ABSTRACT: What form of antitrust (competition) law is fitting for regional free trade areas comprised of developing countries? This article explores the question by tackling, first: Are there special characteristics of developing countries indicating their need for a competition law different from emerging international standards, and if so what are these characteristics and what salient focal points provide a framework for law sympathetic with economic development? The article argues that there are such special needs, and it explores models that respond to those needs. It suggests a metric of efficient inclusive development. In any event, the article argues for a voice of developing countries in choosing their model - which could turn out to correspond or not with the formulations of law in the developed world. Blueprint transplants may be fitting; they may not be fitting; they may fit well enough so that developing countries choose not to incur the costs of difference. The key point is knowledgeable choice. Finally, the article explores how a regional setting can make a difference. It can help overcome problems of effectiveness, and harmful exercises of power by the state and vested interests; but it presents new challenges of effectiveness that must be overcome.

Using Spectrum Auctions to Enhance Competition in Wireless Services

Posted by D. Daniel Sokol

Peter C. Cramton, University of Maryland - Department of Economics, Evan Kwerel, Gregory L. Rosston, Stanford Institute for Economic Policy Research, and Andrzej Skrzypacz, Stanford Graduate School of Business advocate Using Spectrum Auctions to Enhance Competition in Wireless Services.

ABSTRACT: Spectrum auctions are used by governments to assign and price licenses for wireless communications. Effective auction design recognizes the importance of competition, not only in the auction, but in the downstream market for wireless communications. This paper examines several instruments regulators can use to enhance competition and thereby improve market outcomes.