Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, March 29, 2011

Standardization and Markets: Just Exactly Who is the Government, and Why Should Antitrust Care?

Posted by D. Daniel Sokol

Chris Sagers, Cleveland State University - Cleveland-Marshall College of Law has posted Standardization and Markets: Just Exactly Who is the Government, and Why Should Antitrust Care?

ABSTRACT: We take for granted that the basic choice in public policy is between allocation of resources by government bureaucracy, on the one hand, or allocation by markets, on the other. But that dichotomy is false, and at least under contemporary circumstances it is more accurate to describe the choice as between allocation by one kind of bureaucracy and allocation by a different kind of bureaucracy. This poses a problem for our antitrust policy, because it lacks any coherent guidance as to how to address those entities and transactions that are not governmental but are also not simply market-governed. This paper extensively examines one particular sector that nicely demonstrates how false the simple bureaucracy-markets dichotomy really is: the standard setting sector. Standardization is ubiquitous and hugely influential, but it is difficult to capture as either a government phenomenon or a market phenomenon.

March 29, 2011 | Permalink | Comments (0) | TrackBack (0)

20th annual Advanced EU Competition Law, London

Posted by D. Daniel Sokol

20th annual Advanced EU Competition Law, London conference

Prof Richard Whish, Dr Cristina Caffarra and Sir
Christopher Bellamy QC
are chairing and will be joined by 23
competition and policy experts
to ensure that in just two days you will review the implications of all major developments from the past year. Topics include:

  • Review of major events 2010 - 2011
  • The Commission's policies and priorities -
    learn directly from three senior DG Competition representatives
  • Cartel leniency & enforcement
  • Cartel settlements
  • Competition litigation
  • The Commission's guidelines on the new
    horizontal agreements
  • Mergers and joint ventures
  • EU merger control
  • U.S. horizontal merger guidelines
  • Article 101 and Article 102 developments

  • State aid in the financial services
    sector
  • Recent case law from legal and economic
    perspective - including AstraZeneca, Deutsche Telekom, Ryanair/Aer Lingus,
    AkzoNobel
  • IP and competition law issues

 

Plus a post-conference drinks reception. See the full agenda.

March 29, 2011 | Permalink | Comments (0) | TrackBack (0)

Pivotal Suppliers and Market Power in Experimental Supply Function Competition

Posted by D. Daniel Sokol

Jordi Brandts, Instituto de Analisis Economico (CSIC) Barcelona, Stanley S. Reynolds, University of Arizona - Department of Economics, and Arthur J. H. C. Schram, University of Amsterdam - Faculty of Economics and Business (FEB), Tinbergen Institute explore Pivotal Suppliers and Market Power in Experimental Supply Function Competition.

ABSTRACT: In the process of regulatory reform in the electric power industry, the mitigation of market power is one of the basic problems regulators have to deal with. We use experimental data to study the sources of market power with supply function competition, akin to the competition in wholesale electricity markets. An acute form of market power may arise if a supplier is pivotal; that is, if the supplier's capacity is required in order to meet demand. To be able to isolate the impact of demand and capacity conditions on market power, our treatments vary the distribution of demand levels as well as the amount and symmetry of the allocation of production capacity between different suppliers. We relate our results to a descriptive power index and to the predictions of two alternative models: a supply function equilibrium (SFE) model and a multi-unit auction (MUA) model. We find that pivotal suppliers do indeed exercise their market power in the experiments. We also find that observed behavior is consistent with the range of equilibria of the unrestricted SFE model and inconsistent with the unique equilibria of two refinements of the SFE model and of the MUA model.

March 29, 2011 | Permalink | Comments (0) | TrackBack (0)

Monday, March 28, 2011

Spring Meeting - Here I Come

Posted by D. Daniel Sokol

If you live under a rock, then you are not aware of the best practitioner conference in the US in any given year - the ABA Antitrust Spring Meeting. For the rest of you, this is an important week. I will be at the 59th Annual Spring Meeting this year. As is typically the case, I am very impressed with the quality of the programming. In my official capacity as a Vice Chair of the Membership Committee, let me suggest that if you are not involved in the Antitrust Section (even if you are not a US lawyer), you are missing out. The programming is excellent as are the written materials that people spend lots of time putting together in various newsletters, magazines, journals and books of the Section. There is still time to register for the Spring Meeting and still time to join the Section.

March 28, 2011 | Permalink | Comments (0) | TrackBack (0)

Lessons from the Financial Crisis

Posted by D. Daniel Sokol

Maurice Stucke (Tennessee Law) provides Lessons from the Financial Crisis.

ABSTRACT: What lessons can we learn from the financial crisis concerning the issues of systemic risk, firms too big to fail, and the income inequality in the United States today? In light of the public anger over the financial crisis and bailouts to firms deemed too big to fail, this Essay first addresses the issue of systemic risk posed by mergers generally and those in the financial services industries specifically. The federal government heard concerns in the 1990s about mega-mergers in the financial industry. The Department of Justice, for example, heard concerns that the Citibank-Travelers merger would create an institution too big to fail. But the government essentially discounted these concerns. This Essay argues that competition authorities must look beyond the mergers’ short-term impact on static price competition to better understand mergers’ potential long-run effects on the financial network’s health and stability. As income inequality has increased over the past thirty years in the United States, this Essay discusses the political implications of concentrated economic power. The causes of income inequality, whether lax antitrust enforcement is a contributing factor, and whether income inequality can affect antitrust policy are all discussed.

March 28, 2011 | Permalink | Comments (0) | TrackBack (0)

Driving Innovation: A Case for Targeted Competition Policy in Dynamic Markets

Posted by D. Daniel Sokol

Jonathan Galloway, Newcastle Law School explains Driving Innovation: A Case for Targeted Competition Policy in Dynamic Markets.

ABSTRACT: Innovation consists of new ideas, methods and products and together they drive economic growth and deliver benefits to society as a whole. Competitive intensity and rewards both drive innovation, but the importance of providing high rewards, which are secured by intellectual property rights (IPRs), is regularly overstated. Indeed, greater competition and the role of competition law is often claimed to have a ‘chilling effect’ on innovation in spite of facilitating greater dynamic efficiency. This article argues that competition and rewards, and indeed competition law and IPRs, are not mutually exclusive and suggests an approach to maximise innovation in dynamic markets whereby competition law applies to conduct beyond the natural scope of IPR protection. This article tests the suggested approach by applying it to a number of controversial practices in the pharmaceutical sector, as well as standard setting in high technology markets, which give rise to competition concerns. This article concludes by advocating proactive, justifiable competition intervention when conduct exceeds the natural scope of IPRs, and thereby presents a case for targeted competition policy in dynamic markets.

March 28, 2011 | Permalink | Comments (0) | TrackBack (0)

The Transformation of American Energy Markets and the Problem of Market Power

Posted by D. Daniel Sokol

David B. Spence, University of Texas at Austin - Department of Business, Government and Society and Robert A. Prentice, University of Texas at Austin - McCombs School of Business describe The Transformation of American Energy Markets and the Problem of Market Power.

ABSTRACT: Traditionally, American energy markets have been regulated using a combination of antitrust law and public utility law: the former has predominated in oil markets and the latter in markets for natural gas and electricity. Over time, energy markets have grown increasingly complex and competitive, due partly to changing market conditions (for example, in oil markets) and partly to the regulation (in natural gas and electricity markets). Increasingly competitive energy markets meant increased risk for energy companies, who turned to energy derivatives as a way to hedge that risk. High energy prices and charges of manipulation in 21st-century energy markets have led regulators to a new approach, one that borrows from securities regulation and focuses attention and "manipulation and deceit" by energy market participants. However, the securities model may be a bad fit for energy markets, because reliance on this new approach exposes consumers to price risks associated with the exercise of market power by sellers, risks to which they were not subject under traditional approaches to regulation. Specifically, the securities regulation model overlooks important ways in which sellers can exert market power at the expense of consumers in the absence of fraud or deceit, partly because of the way securities case law interprets "manipulation," and partly because some of the common assumptions regulators employ about the ways in which market participants respond to price changes do not apply, or apply only weakly, in some energy markets. We explore the origins of these "bad fit" problems, and their implications, in this article.

 

March 28, 2011 | Permalink | Comments (0) | TrackBack (0)

The Welfare Effects of Third-Degree Price Discrimination in a Differentiated Oligopoly

Posted by D. Daniel Sokol

Takanori Adachi, School of Economics, Nagoya University and Noriaki Matsushima, Institute of Social and Economic Research, Osaka University discuss The Welfare Effects of Third-Degree Price Discrimination in a Differentiated Oligopoly.

ABSTRACT: This paper studies the relationship between horizontal product differentiation and the welfare effects of third-degree price discrimination in oligopoly. By deriving linear demand from a representative consumer's utility and focusing on the symmetric equilibrium of a pricing game, we characterize the conditions relating to such demand properties as substitutability and complementarity for price discrimination to improve social welfare. In particular, we show that price discrimination can improve social welfare if firms' brands are substitutes in a market where the discriminatory price is higher and complements in one where it is lower, but welfare never improves in the reverse situation. We verify, however, that consumer surplus is never improved by price discrimination; welfare improvement by price discrimination is solely due to an increase in the firms' profits. This means that there is no chance that firms suffer fro! m a "prisoners' dilemma," that is, firms are better off by switching from uniform pricing to price discrimination.

March 28, 2011 | Permalink | Comments (0) | TrackBack (0)

Escaping Effects Analysis: The Commission's New Approach to Restrictions by Object

Posted by D. Daniel Sokol

Lars Kjølbye (Covington & Burling) discusses Escaping Effects Analysis: The Commission's New Approach to Restrictions by Object.

ABSTRACT: The Commission must be commended for having issued new Guidelines on horizontal cooperation agreements that, in terms of the analytical framework, in many ways is a clear improvement over the previous version of the Guidelines. The Commission makes clear in the new Guidelines that the analysis of horizontal cooperation agreements cannot be limited to considering cost commonalities. It is necessary to consider also the express or implicit restrictions contained in the agreement and how the agreement affects the parties' incentives. Cost commonalities form part of this latter analysis, but are only part of the picture. It is likely that users will find the new Guidelines more useful than their predecessor when engaging in self-assessment.

However, the Commission has also used the revision of the Guidelines to expand the notion of restrictions by object and reduce the number of cases in which it is required to prove likely adverse effects on competition before the parties are required to invoke the efficiency defense and provide evidence that the four conditions of Article 101(3) TFEU are satisfied. In the case of restrictions by object adverse effects on competition are presumed. A more inclusive approach to restrictions by object means that in many more cases it falls on the parties to make a credible efficiency defense before the Commission is required to show likely effects on competition.

It is submitted that this change in policy is unjustified as a matter of law and economics and that it risks creating uncertainty for a whole range of agreements that for good reason have never attracted much antitrust scrutiny. This is illustrated by the approach in the new Guidelines to joint production agreements.

March 28, 2011 | Permalink | Comments (0) | TrackBack (0)

Sunday, March 27, 2011

Best Wishes to Tim Muris on His Move to Kirkland & Eillis

Posted by D. Daniel Sokol

Tim Muris, one of the leading antitrust professors and practitioners in the world, is moving a chunk of his antitrust team from O'Melvany to Kirkland & Ellis. I have not yet seen a press release on the Kirkland website (note to Kirkland, this is very big news so send something out) but because the Washington Post is reporting the story, I feel that I can as well. Normally I do not note practitioner moves. However as Muris is also an academic at George Mason, I feel that it is ok to bend the rules. Tim also will be writing a paper for the 100 Years of Standard Oil conference that will appear in the Southern California Law Review in which I am co-organizing with Barak Orbach and Ed Swaine. More on the conference in subsequent posts.

March 28 Update

At 6:03pm I received an email press release highlighting the moves of Timothy Muris, Christine Wilson, Bilal Sayyed and Ian Conner to K&E. The news is now official. This is a big pick-up for K&E.

March 27, 2011 | Permalink | Comments (0) | TrackBack (0)

Merger control a view from the departure lounge

Posted by D. Daniel Sokol

Peter Freeman (Competition Commission) has a speech up on Merger control a view from the departure lounge.

March 27, 2011 | Permalink | Comments (0) | TrackBack (0)