Monday, January 10, 2011
Posted D. Daniel Sokol
Max Huffman, Indiana University School of Law - Indianapolis has produced an Introduction to ‘Competition Policy in Health Care in an Era of Reform’.
ABSTRACT: Health care reform recently has been signed into law by President Obama. The signing concluded a tortuous legislative process involving false starts, recriminations, accusations of stonewalling on one side and “ramming” using “dirty tricks” on the other, threats of filibuster, and fear of electoral response. Passage of health care reform legislation is just the beginning. As with all major legislation, there will be many years of learning what the new law means in application. And the absorption process for the second-order regulatory scheme of antitrust will be even slower. I introduce here the transcript of a panel discussion, held on December 10, 2009, which I believe to be the first broad (if not comprehensive) analysis of the competition policy implications of health care reform. The pages following this introduction provide a road map for correctly analyzing many of the antitrust issues that have arisen in health care previously and are certain to arise in health care as reformed.
Understanding how to analyze these issues could not be more important. As panelist Paul London wrote in 2001, “[r]eal competition in health care would stimulate the American economy.” London noted the competition picture raised questions about insurance, providers – doctors and hospitals, technologies and information systems, and regulatory approaches.
To this end we convened a rare gathering of think-tankers, academic economists, law, business and medical school professors, and practitioners, all with deep expertise in the arenas of health law, antitrust law, and in many cases, both. Several of our participants came originally from the world of government antitrust enforcement. We gathered for an entire day, initially for several hours in a private think-tank style discussion, and later in a public panel discussion. During both sessions, topic leaders introduced a particular genus of issues on which they previously had submitted written work to the group. The topic leaders then described some possible resolutions to those issues, and the group engaged in the discussion. In the afternoon session, the transcript of which follows, we reprised some of the same discussion, but our public discussion was neatly distilled by the morning's conversation.
Posted by D. Daniel Sokol
ABSTRACT: This article evaluates the predictive power of merger analysis. It looks first at the process courts use to resolve merger challenges and finds that in the area of product market definition, merger analysis is reasonably strong. The courts employ a theoretically precise test, examine multiple categories of evidence, devote a great deal of attention to the issue, and generally reach a defensible outcome. Market definition remains complex and subjective, however, and could be improved – or even avoided altogether – through such economic techniques as merger simulation. In contrast, judicial analysis of the likelihood of entry is distinctly weaker. Instead of working their way through the theoretically appropriate test – would new entry be profitable? – courts commonly resort to the simpler question: is the relevant market protected by entry barriers? But most judges do not assess the height of the barriers they find, or address the profitability of entry directly, and thus do not resolve the likelihood issue in an economically sound way.
The article also appraises the predictive power of merger analysis in a second way – by examining the results of “marginal” mergers, mergers that would have been blocked if the government and courts had been somewhat more aggressive. Measured in this way, merger analysis does not seem to be seriously off target: the merger retrospectives find that very few transactions led to either sharp price increases or major price reductions. At the same time, however, the studies indicate that a large proportion of marginal mergers resulted in small but significant price increases. This striking pattern does not support a broad scale increase in merger enforcement, given the limitations of the retrospectives, but it does suggest that in appropriate cases, enforcement agencies and courts should be more willing to block mergers. Finally, the article recommends that the enforcement agencies conduct more retrospectives, not only to improve the predictive power of merger analysis generally, but to resolve the behavioralist challenge to the profitability model of entry.
Posted by D. Daniel Sokol
ABSTRACT: This paper, written for a conference at the Fordham University Law School, examines various facets of the “too big to fail” debate. It notes that in the current context, “too big to fail” may imply systemic risks from large financial institution size, compensating economies of scale, political power, and (within narrower markets) power to set prices above competitive levels. It examines three stylized facts: the contours of the recent merger wave among financial institutions, the concomitant increase in the concentration of financial institution assets, and the impressive rise in financial institutions’ profits as a share of all U.S. corporate profits,. It argues that rising aggregate concentration of financial institutions’ assets may imply rise in the power to set above-competitive prices in individual relevant banking markets – i.e., in segments of what economists call “product characteristics space.” There is not much solid economic evidence on this last conjecture for investment banking firms, but supporting evidence from the large number of studies focusing on commercial banks is marshaled. The evidence on economies of scale is also imperfect, but it implies that breakup of the largest banks need not cause great efficiency losses.
Posted by D. Daniel Sokol
Malcolm Coate (FTC) has posted Counting Rivals or Measuring Share: Modeling Unilateral Effects for Merger Analysis.
ABSTRACT: This paper explores the FTC’s unilateral effects merger policy using a sample of 184 investigations undertaken between 1993 and 2009. A review of the files suggests that roughly half of the sample is evaluated with a dominant firm/monopoly model, while the rest of the cases require a more complex unilateral effects analysis. Deterministic modeling based on the number of significant rivals suggests that the four-to-three transaction in a market with impediments to entry represents the marginal merger challenge. Case specific facts explain deviations from this rule and suggest that critical diversion ratios fall into the 25-30 percent range. Share based indices (post-merger market share, change in the Herfindahl, or a share-based Gross Upward Pressure on Price variable) can be used, but require the definition of a market and do not predict outcomes as well as the significant rivals’ model. An Appendix details the various reasons why the staff declined to apply a unilateral effects analysis to conclude a merger was likely to substantially lessen competition in a broader sample of differentiated products mergers.
Sunday, January 9, 2011
Posted by D. Daniel Sokol
You are cordially invited to the second UEA Policy Briefing:
A single UK competition authority?
Merging the OFT and the
School of Political, Social and International Studies
School of Economics
ESRC Centre for Competition Policy
Date: Thursday 27 January 2011, 6.15pm
Venue: UEA London, 102 Middlesex Street, E1 7EZ
Speakers: Professor Stephen Davies, Professor Bruce Lyons
Convenors: Rt Hon Charles Clarke, University of East Anglia
Prof Hussein Kassim, University of East Anglia
About UEA Policy Briefings
This series of events examines policy issues confronting policy makers.
Policy experts from UEA and elsewhere open each briefing with short
presentations that describe the main challenges, outline the options and
identify the costs and benefits. Questions from the floor are invited.
This event is free to attend. Please register your interest in attending
by emailing your name and affiliation to [email protected]