Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, June 25, 2011

Revise or Start Anew? Pondering the Google Books Rejection

Posted by D. Daniel Sokol

Timothy Brennan (UMBC) asks Revise or Start Anew? Pondering the Google Books Rejection.

ABSTRACT: I earlier commented on economic issues in the proposed settlement. Here, I want to focus on economic aspects of the specific concerns Judge Chin raised, including "opt in" vs. "opt out," and the potential applicability of a fair use defense. I then look at the scope of his authority especially with regard to orphan books and the antitrust arguments he mentions and raised in the DOJ Statement. I conclude with observations on the antagonisms in the class and why the objectors to Google in the settlement need not be on the side of competition.

June 25, 2011 | Permalink | Comments (0) | TrackBack (0)

Friday, June 24, 2011

A Model of Labeling with Horizontal Differentiation and Cost Variability

Posted by D. Daniel Sokol

Alexander E. Saak (International Food Policy Research Institute) provides A Model of Labeling with Horizontal Differentiation and Cost Variability.

ABSTRACT: We study optimal disclosure of variety by a multi-product firm with random costs. In our model there are two varieties that are horizontally differentiated and differ in overall quality, but buyers cannot distinguish between them without labels. The equilibrium prices for labeled varieties are increasing functions of the absolute value of the cost differential and do not reveal which variety is cheaper to produce. Nondisclosure is most common when there is moderate uncertainty about the relative input cost, not too much idiosyncrasy in consumer valuations, and not too much difference in quality across varieties. Although mandatory disclosure of variety benefits consumers, it decreases expected welfare when relative input cost variability is large and quality asymmetry is small. The cheaper variety tends to be oversupplied (undersupplied) when disclosure is voluntary (mandatory). Competition among multi-product firms that! source inputs in the same upstream market may not lead to more disclosure.

June 24, 2011 | Permalink | Comments (0) | TrackBack (0)

Persuading Consumers With Social Attitudes

Posted by D. Daniel Sokol

Stefan Buehler (University of St. Gallen) and Daniel Halbheer (University of Zurich Department of Business Administration) are writing on Persuading Consumers With Social Attitudes.

ABSTRACT: This paper analyzes persuasive advertising and pricing in oligopoly if firms sell differentiated products and consumers have heterogenous social attitudes towards the consumption by others. Deriving product demand from primitives, we show that the demand-enhancing effect of persuasive advertising varies across consumers and increases in the average degree of conformity. In equilibrium, both quality and cost leaders choose higher advertising intensities and charge higher prices than their competitors. In addition, we show that an increase in the average degree of conformity among consumers reinforces asymmetries between firms.

June 24, 2011 | Permalink | Comments (0) | TrackBack (0)

The empirical content of Cournot competition

Posted by D. Daniel Sokol

Laurens Cherchye (Tilburg University and Center for Economic Studies, University of Leuven), Thomas Demuyncky (Center for Economic Studies, University of Leuven), Bram De Rock (ECARES-ECORE, Universite de Bruxelles) describe The empirical content of Cournot competition.

ABSTRACT: We consider the testable implications of the Cournot model of market competition. Our approach is nonparametric in that we abstain from imposing any functional specification on market demand and firm cost functions. We derive necessary and sufficient conditions for (reduced form) equilibrium market price and quantity functions to be consistent with the Cournot model. In addition, we present identification results for the corresponding inverse market demand function and the firm cost functions. Finally, we use our approach to derive testable restrictions for the models of perfect competition, collusion and conjectural variations. This identifies the conditions under which these different models are empirically distinguishable from the Cournot model.

June 24, 2011 | Permalink | Comments (0) | TrackBack (0)

Thursday, June 23, 2011

WSJ Reports - FTC to Serve Google With Subpoenas in Broad Antitrust Probe - the next case of the Century?

Posted by D. Daniel Sokol

Just three weeks ago I participated in a conference on the 100 Year Anniversary of Standard Oil. Standard Oil may well be the most important business case of the last 100 years. In light of that, I find it interesting that the FTC is after the next "big" case - Google. The WSJ reports today that the case against Google is picking up with subpoenas to be served soon.

June 23, 2011 | Permalink | Comments (0) | TrackBack (0)

Dynamic Informative Advertising of New Experience Goods

Posted by D. Daniel Sokol

Alexander E. Saak, International Food Policy Research Institute describes Dynamic Informative Advertising of New Experience Goods.

ABSTRACT: This paper analyzes the optimal advertising and price policies of a monopolist who sells a new experience good over time to a population of heterogeneous forward-looking buyers. We consider informative advertising that can complement or substitute for learning-by-purchasing, and show that the advertising intensity always peaks during the early stages when the price extracts surplus from the buyers who are yet to learn their valuation for the good. We also show that even though informative advertising may temporarily raise prices and slow down the learning process, an advertising ban can reduce welfare.

June 23, 2011 | Permalink | Comments (0) | TrackBack (0)

Transatlantic Airline Alliances: The Joint EU–US Report

Posted by D. Daniel Sokol

Diane Moss (AAI) has an article on Transatlantic Airline Alliances: The Joint EU–US Report .

ABSTRACT: The European Commission and U.S. Department of Transportation recently released a joint report to help develop a common understanding of aviation competition issues and build compatible regulatory approaches. The report highlights the general uniformity across the U.S. and European Union approaches to airline alliance competition issues and makes the case for further cooperation and coordination. Furthering the goal of harmonization, however, will be enhanced by reconciling key differences in regulatory regime and analytical approaches, particularly in regard to grants of antitrust immunity. Both airlines and regulators in the U.S. and European Union face the question of how entry by low cost carriers on transatlantic routes will change the alliance landscape.

June 23, 2011 | Permalink | Comments (0) | TrackBack (0)

Are State-Owned Health-Care Providers Undertakings Subject to Competition Law?

Posted by D. Daniel Sokol

Okeoghene Odudu, University of Cambridge - Faculty of Law asks Are State-Owned Health-Care Providers Undertakings Subject to Competition Law?

ABSTRACT: The purpose of this paper is to consider whether and when competition law is applicable to State-owned health-care providers operating within a scheme intended to provide universal coverage free at the point of delivery and funded by general taxation. Applying the principles developed by the Court of Justice to determine the scope of the competition rules it is clear that health-care providers of all types fall within the scope of the EU competition rules and that such entities have been treated as within the scope of the competition rules.

June 23, 2011 | Permalink | Comments (0) | TrackBack (0)

A Missed Gem of an Opportunity for the Representative Rule

Posted by D. Daniel Sokol

Rachael Mulheron, Queen Mary University of London, School of Law describes A Missed Gem of an Opportunity for the Representative Rule.

ABSTRACT: A review of the Court of Appeal decision in Emerald Supplies Ltd v. British Airways plc., rejecting the representative action against British Airways seeking money damages for the alleged global air fuel surcharges cartel. The Article critically examines the decision and concludes that the Court of Appeal has extremely limited the scope of the representative rule, missing a gem of an opportunity to render it a truly flexible tool of convenience.

June 23, 2011 | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 22, 2011

On the Normative Foundations of Competition Law: Efficiency, Political Freedom and the Freedom to Compete

Posted by D. Daniel Sokol

Frank P. Maier-Rigaud, OECD Competition Division, European Commission, DG Competition, Max Planck Institute for Research on Collective Goods, Laboratory for Experimental Economics, University of Bonn, Indiana University Bloomington - Workshop in Political Theory and Policy Analysis provides thoughts on On the Normative Foundations of Competition Law: Efficiency, Political Freedom and the Freedom to Compete.

ABSTRACT: The advent of a more economic approach to EU competition law has spurred the most substantial debate on the normative justifications of competition law in recent history. Nevertheless, and despite a limited literature to the contrary, these are not times of fundamental debate concerning the ultimate aims of competition policy. This is evidenced by the limited practical importance of the normative foundations of competition law in the enforcement practice of competition authorities and even in policy debates.

June 22, 2011 | Permalink | Comments (0) | TrackBack (0)

Telecoms Regulation, Antitrust and Margin Squeeze: Widening the Already Wide Gap between US and EU Competition Policy?

Posted by D. Daniel Sokol

Fernando Diez, University of Antonio de Nebrija asks Telecoms Regulation, Antitrust and Margin Squeeze: Widening the Already Wide Gap between US and EU Competition Policy?

ABSTRACT: The price-squeeze doctrine, and the discussion of up to what extent can a dominant firm discipline its rivals by means of pricing policies has lead to a wide divergence of antitrust enforcement and consequent liability rules across the Atlantic, and even between US’ agencies – the Department of Justice and the Federal Trade Commission- themselves. In two high-profile decisions – the European Commission’s July 2007 imposition of a fine on Spanish telecom incumbent Telefonica, and the European Court of First Instance’s April 2008 decision affirming a similar fine imposed earlier on telecom provider Deutsche Telekom – European authorities have recognized price squeezes as an appropriate ground for finding an abuse of dominance under Article 102 of the Treaty of Functioning of the European Union.

The structure with which we are going to address these issues would follow a route which will lead us from the more general matters to the more specific questions at stake here. Consequently, after this introductory section, we will show – briefly – the main differences and similarities between US and EU enforcement policies regarding broad unilateral conduct. In the next section we turn to the specific behaviour of anticompetitive margin squeeze, as considered in both jurisdictions by jurisprudence and scholarship. This analytical framework is biased – more heavily in the EU than in the US – by the interaction between regulation and antitrust, and to such matter we devote the following section of this paper, with specific reference to the recent Telefonica and Deutsche Telekom cases. The next section in turn analyses the recent linkLine decision, from the different point of view of the Ninth Circuit, the DOJ and the FTC. Of course, after all those we pay close attention to the U.S. Supreme Court’s opinion. At this point we will ask ourselves if an integrative analytical framework (suitable for both the US and EU, and acceptable for both the DOJ and the FTC) is possible to be found. Before the concluding section, a comprehensive account of the rules governing unilateral conduct regarding margin squeeze claims is offered, to conclude – in the following section – than unfortunately the approach to margin squeeze in the three referred cases is quite diverging. Finally, some general conclusions are given in the last section of this paper.

June 22, 2011 | Permalink | Comments (0) | TrackBack (0)

Are "Closed Systems" an Antitrust Problem?

Posted by D. Daniel Sokol Hanno Kaiser (Latham & Watkins) asks Are "Closed Systems" an Antitrust Problem?

ABSTRACT: Closed computer systems have come under attack as harmful to freedom, innovation, and competition. Open computer systems, in contrast, are said to promote such values. This article assesses the specific claim that closed systems, compared to open systems, are inherently anticompetitive. It concludes that competition policy arguments against closed systems are at best inconclusive and that closed systems should not be put in an antitrust suspect class.

June 22, 2011 | Permalink | Comments (0) | TrackBack (0)

Using a Sledgehammer to Crack a Nut: Why China's Anti-Monopoly Law was Inappropriate for Renren v. Baidu

Posted by D. Daniel Sokol

Angela Huyue Zhang (Cleary Gttlieb) discusses Using a Sledgehammer to Crack a Nut: Why China's Anti-Monopoly Law was Inappropriate for Renren v. Baidu. ABSTRACT: On December 18, 2009, Beijing No. 1 Intermediate People's Court issued a ruling in favor of Baidu, Inc., a leading search engine provider in China, in an abuse of a dominant position case brought by Tangshan Renren Information Services Co., an operator of a medical information consulting website. Renren alleged that Baidu had downgraded its website in order to coerce it into using its search advertising services. The Court dismissed the case primarily on the grounds that Renren had failed to establish that Baidu had a dominant position in China's search engine service market.

Although the dismissal may have been the correct outcome, the Court's analysis was misguided. While the Court recognized certain two-sided features of Baidu's business model, it failed to further explore the impact of those features on the competition analysis. Crucially, the Court erred in defining the relevant product market as the search engine service market. Instead of using a one-sided approach, the Court should have adopted a two-sided approach in defining therelevant market.

Moreover, the Court readily accepted Baidu's defense without investigating whether the blockage was solely motivated by the existence of junk links the information asymmetry between Baidu and customers such as Renren made it difficult to discern whether Baidu had downgraded the websites with the legitimate reason of penalizing junk links or with the motive of coercing those websites into using its advertising services.

On the other hand, although there is a theoretical possibility that Baidu may have had an incentive to impose artificial switching costs in order to lock in existing customers, the reputational cost should have been sufficient to deter Baidu from committing such abuses. New customers who are informed about the switching cost would be unlikely to choose Baidu and existing customers who are locked in would be unlikely to choose Baidu again. As informed consumers would not be harmed, the application of the Anti-Monopoly Law to this case is like using a sledgehammer to crack a nut. Indeed, consumer protection law rather than antitrust law would have been a better tool to tackle abusive behaviors like those alleged by Renren.

June 22, 2011 | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 21, 2011

Most Cited Antitrust/Competition Economics Professors in US. Law Reviews

Posted by D. Daniel Sokol

Just as with the most cited US Antitrust Law Professors search I ran, I just ran a search in the JLR westlaw database of Antitrust/Competition Economics tenure track professors. In some cases, professors have written in mutiple areas of which antitrust is just one part of the portfolio. Note that unlike law professors, economics professors write primarily in economics journals for other economists so this set of results just measures economists' impact in the legal scholarly literature. Please let me know if I have missed anyone. I note that there is at least one special case. *

Oliver Williamson 2285
Carl Shapiro 1794
Benjamin Klein 1489
William Baumol 1275
F.M. Scherer 1228
Jean Tirole 1172
Roger Noll 1093
Dennis Carlton 953
Richard Schmalensee 927
Joe Farrell 784
Lawrence J. White 742
Robert Willig 734
Roger D. Blair 696
Michael Katz 662
Richard Gilbert 596
Paul Joskow 590
David Teece 579
Orly Ashenfelter 568
Jerry Hausman 564
Janusz Ordover 532
Daniel Spulber 447
Barry Nalebuff 441
Franklin Fisher 414
Robert S. Pindyck 402
Patrick Bolton 402
Jeffrey Perloff 401
Bruce Owen 387
Kenneth Elzinga 362
Kevin Murphy 359
Michael Whinston 325
Paul Klemperer 311
David Scheffman 302
Richard Zerbe 301
Garth Saloner 291
Michael Waldman 272
John Kwoka 260
B. Douglas Bernheim 256
Nicholas Economides 250
William Comanor 239
Timothy Bresnahan 237
Timothy Brennan 237
David Mills 232
Dennis Yao 228
Severin Borenstein 211
Howard Marvel 203
Edward Snyder 199
Preston McAfee 197
William Shughart 192
Luke Froeb 189
John Vickers 164
Michael Salinger 162
David Dranove 160
Ralph Winter 156
Mark Armstrong 147
Joseph Harrington 139
Marius Schwartz 139
Patrick Rey 130
Martin Cave 116
Leonard Waverman 113
David Sibley 111
Francine Lafontaine 106
Greg Shaffer 100
Sharon Oster 99
Ernst R Berndt 95
Thomas W. Ross 94
Frederic Jenny 86
John Connor 84
Valerie Suslow 83
Paul Seabright 80
Damien Neven 79
Margaret Levenstein 77
Jeffrey Church 71
Paul Dobson 74
David Newbery 69
Massimo Motta 68
Joshua Gans 63
François Lévêque 62
Neil Gandal 61
Michael Baye 59
Donald McFetridge 55
Robert Topel 55
Jay Pil Choi 52
John T. Scott 51
Stephen Salant 47
Lars-Hendrik Röller 46
Fiona M Scott Morton 45
Martin Perry 44
Steffen Huck 36
Luis Cabral 34
Pierre Regibeau 29
Giancarlo Spagnolo 26
Juan Pablo Montero 25
Bruce Lyons 24
Frank Verboven 23
Stephen P. King 22
Vivek Ghosal 22
Aviv Nevo 21
Marc Ivaldi 20
Michele Polo 20
Kai-Uwe Kuhn 20
Maarten Pieter Schinkel 16
Roman Inderst 12
Catherine Waddams 10
Chiara Fumagali 4
Cecile Aubert 8
Tomaso Duso 8
Hans-Theo Normann 3
Pedro Pita Barros 3
Hans W Friederiszick 3
Morton Hviid 1

* David Evans is an economist who has non tenure track teaching gigs at the University of Chicago Law School and UCL Law (where he also serves as Executive Director of the Jevons Institute for Competition Law and Economics). David has 526 citations.

June 21, 2011 | Permalink | Comments (1) | TrackBack (0)

Antitrust: A Good Deal for All in Times of Globalization and Recession

Posted by D. Daniel Sokol

Bruno Lasserre (French Autorité de la concurrence) suggests Antitrust: A Good Deal for All in Times of Globalization and Recession. ABSTRACT: With the economic recession taking over from the financial crisis of 2008, attention has focused less on issues such as merger review and State aid control, and more on antitrust properly speaking, meaning the prohibition of cartels and abuses of dominance, as well as the enforcement of this prohibition by means of administrative fines imposed on corporations and/or of criminal penalties directed to individuals. Among other items, this agenda has included the following questions: 1) whether corporate fines are excessive or indeed misdirected and should be replaced in whole or at least in part by individual penalties; 2) whether antitrust enforcement itself is a luxury good or even an idea of yesterday, and should be abandoned or at least significantly relaxed.

In the following pages, I will briefly address these two issues. I will do so in reverse order, since discussing the significance of public antitrust enforcement via administrative fines and/or criminal penalties makes little sense if this enforcement has become irrelevant in the first place. I will not deal with the separate issue of private enforcement.

June 21, 2011 | Permalink | Comments (0) | TrackBack (0)

Innovation Market Theory

Posted by D. Daniel Sokol

Kent Bernard (Fordham Law School) addresses Innovation Market Theory. ABSTRACT: Encouraging and/or preserving innovation in mergers and acquisitions have been critical factors in modern antitrust analysis. These aims have been justification for the breakup of proposed research programs targeting diseases as serious as HIV/AIDS and cancer. The rationale given is always to protect competition and enhance the benefits to consumers.

Lawyers and economists justify intervention in mergers based on predictions of what will or might happen many years down the road in scientific research programs. They base those predictions on various theories and assumptions of how companies behave. But an examination of the actual drivers in the research based pharmaceutical industry, such as the time factor of revenue destruction and the resulting continuing need for new products, along with a review of what happened in key cases after the agencies acted, reveals that those underlying assumptions may well have been unfounded.

This factual consideration of how business actually behaves has been missing from the analysis. This article looks at the leading approaches to "innovation markets." It then reviews the key cases in which the theory has been applied, and looks to see what actually happened after the case files were closed. In other words, did the intervention do any good, and/or did the lack of intervention do any harm?

The results of that inquiry strongly suggest that not only was the intervention not beneficial, it may have dampened innovation by reducing the potential reward while ignoring the risks that any innovator is being asked to run. Innovation market theory arose out of a concern that mergers were reducing innovative capacity. The regular tools of analysis failed to provide a remedy for this sort of highly speculative harm, so the agencies stretched the concept of innovation markets to allow them to act under it. However, the analysis here shows that the perceived risk was based on a misapprehension about how companies actually behave and the nature of innovation itself. Once that is understood, the need to stretch the concept of innovation markets goes away.

This article also proposes an alternative approach, grounded in traditional antitrust but based on market reality rather than theory. When this approach is applied to the facts of the cases, it allows intervention when needed while avoiding speculative interference with scientific and business pursuits.

June 21, 2011 | Permalink | Comments (0) | TrackBack (0)

Journalism, Competition, and the Digital Transition

Posted by D. Daniel Sokol

Matthew Bye & Oliver Bethell (Google) explain Journalism, Competition, and the Digital Transition.

ABSTRACT: This article considers the role of competition law and policy in shaping the news industry's digital transition. It begins by examining the shifting landscape for traditional media companies and describing Google's approach to news. The article then addresses arguments that exemptions from the antitrust laws are necessary to facilitate a digital transition by traditional news providers and concludes by considering some of the emerging business models that have been the subject of recent Department of Justice Business Review Letters.

June 21, 2011 | Permalink | Comments (0) | TrackBack (0)

Applications Want to be Free: Privacy Against Information

Posted by D. Daniel Sokol

Michael Hammock (Middle Tenn. State Univ.) & Paul Rubin (Emory) address Applications Want to be Free: Privacy Against Information.

ABSTRACT: The debate over online privacy pays too little attention to the costs and benefits of the current systems of privacy protection and advertising-supported online applications. The costs of online privacy-related harm (such as identity theft) and of protective activities are small relative to the benefits from applications that are supported by online advertising, which depends on the collection of personal information. Advocates of increased privacy focus too much on increased privacy as a solution, and not enough on alternative forms of information security. Surveys show that consumers do not like targeted advertising, or the information collection that allows it, but this may be a form of rational irrationality.That is, it may not pay for consumers to understand the costs and benefits of reduced information use.

June 21, 2011 | Permalink | Comments (0) | TrackBack (0)

Monday, June 20, 2011

Home of FTC Chairman Jon Leibowitz Toilet Papered

Posted by D. Daniel Sokol

Ruth Marcus (wife of FTC Chairman Jon Leibowitz) ran a column on Friday in the Washington Post about how their house was toilet papered. She thinks it was teeangers. We cannot rule out that it was not a company under investigation or found to be in violation of the antitrust laws or even, dare I suggest it, an inside job at the FTC (some Bureau of Competition lawyers blame the economists at the Bureau of Economics and vice versa). Given inter-agency squabbling in recent months, maybe it was someone at DOJ Antitrust. As Marcus writes:

It really was an impressive job. This was not a half-baked effort, a few rolls casually tossed here and there. It was a three-tree, double-ply extravaganza. The diligence of our attackers will stand them in good stead later in life.

At least one of the perpetrators had a pretty good arm. One of the rolls landed by the bedroom window, raising the question of how the dog managed to snore through the entire event. There was a shaving cream component and, my favorite touch, a Dada-esque field of plastic forks stuck in the lawn.

Update - June 21: A European asked me what is it to toilet paper a house.  Apparently this is not done in Europe.  I found a clip on youtube that speaks for itself.

 

June 20, 2011 | Permalink | Comments (1) | TrackBack (0)

Payment Card Regulation and the Use of Economic Analysis in Antitrust

Posted by D. Daniel Sokol

Jean Tirole (Univ. of Toulouse) explains Payment Card Regulation and the Use of Economic Analysis in Antitrust.

ABSTRACT: A key input of our modern economies, payment cards are ubiquitous; debit and credit cards offer a wide range of alternatives to cash and checks to operate brick and mortar, e- and mobile phone, and P2P payments. The contours of the industry are rapidly changing. The payment card industry is also becoming one of the most heavily regulated industries in some parts of the world. The United States and Europe, as well as a number of other jurisdictions across the world, have been or are in the process of regulating inter alia, the network-determined payment made by the merchant's bank (called the acquirer) to the cardholder's bank (the issuer). This "Interchange Fee" has been the object of much controversy and the theoretical underpinnings of its regulation are still debated. The primary object of this note is to clarify the considerations that should be brought to bear on the determination of regulated fees. It argues that some broadly contemplated regulatory methodologies bear only limited resemblance with economically sound precepts. Finally, it derives some implications of these regulations for the likely evolution of the payment card industry.

June 20, 2011 | Permalink | Comments (0) | TrackBack (0)