Antitrust & Competition Policy Blog

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

Monday, August 29, 2011

The Antitrust Curse of Bigness

Posted by D. Daniel Sokol

Barak Orbach University of Arizona and Grace E. Campbell University of Arizona - James E. Rogers College of Law discuss The Antitrust Curse of Bigness.

ABSTRACT: In 1882 Standard Oil’s General Solicitor invented the corporate trusts that inspired the birth of the anti-trust discipline. The public aversion to trusts in the United States gave the field its enduring and uniquely American name. As the discipline matured, distrust of bigness took root in cases and doctrines. Justices Louis Brandeis and William Douglas wrote the narrative into early case law and it remained embedded in the field even as economics became the antitrust methodology—although economics transformed the fear from absolute size to relative size (market shares). While size should be an irrelevant consideration in antitrust analysis, it still mistakenly serves as a driving force behind the law. This Article studies how the fear of bigness—of absolute or relative size—has shaped and confused analytical perceptions of antitrust law. The American discipline might owe its birth to the fear of size, but this fear has been a burden and a curse on the development of sound antitrust policies.

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

Monopoly and Regulation in Industrializing England: Evidence from the Infrastructure Sector

Posted by D. Daniel Sokol

Daniel E. Bogart, University of California, Irvine - Department of Economics addresses Monopoly and Regulation in Industrializing England: Evidence from the Infrastructure Sector.

ABSTRACT: The infrastructure sector poses a challenge to the view that England had open and competitive markets during its industrializing era. The British national government granted thousands of monopolies with rights to levy tolls on internal trade in the 1700s and early 1800s. This paper shows, however, that most monopoly infrastructure providers did not earn monopoly profits. Using turnpike and river navigation investments as test cases, it demonstrates that rates of return were between 3 and 5%, below the competitive rate of return. The paper also offers evidence that profits were low in part because of competition between providers. Rates of return are shown to be lower in counties with lower Herfindahl indices. The strength of competition is linked with a regulatory framework that imposed low barriers to entry in the infrastructure sector.

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

Patent Misuse and Antitrust: An Empirical Study

Posted by D. Daniel Sokol

Daryl Lim, The John Marshall Law School has written Patent Misuse and Antitrust: An Empirical Study.

ABSTRACT: This empirical study seeks to present a systematic, comprehensive account of the recent history of patent misuse case law, its actual state and its relationship with antitrust law. The study is based on the use of case content analysis complemented by interviews. The findings present an analysis of how federal judges who employed patent misuse did so, and how patent misuse is current perceived by contemporary judges, academics, government officials, and lawyers.

Conventional legal doctrine derives from a small set of cases selected by case reporters and academics. This study will determine whether that conventional wisdom in fact has empirical support. It highlights key aspects of patent misuse, including the way it has been interwoven with antitrust principles. The study is based on the use of case content analysis complemented by interviews. The findings present an empirical analysis of how federal judges who employed patent misuse did so, and how patent misuse is current perceived by contemporary judges, academics, government officials, and lawyers. It also provides an indication of whether more in-depth research is required to unravel the nature and extent of the interaction between patent misuse and antitrust. This study does not set out to analyze case law. Cases are relevant only to the extent that they stated a policy position, or featured as a variable in the study, or example as a precedent, whose citation which could be quantified.

The study begins by setting the stage. It presents relevant facets of data on patent misuse to provide an appreciation of the issues that follow. It explains how cases are distributed, for example by circuit, posture and industry. It also presents the outcomes of cases which have considered patent misuse without reference to antitrust, or both patent misuse and antitrust, in preparation for the discussion on the relationships between them that follows. Finally, it presents the rich and diverse categories of misuse which have appeared over the years.

The second part of the study focuses on the intersection of patent misuse and antitrust law. It begins by examining what factors go into determining when patentees exceed the scope of their rights. Specifically, it attempts to deconstruct the analytical process judges employ, and articulate the policies driving patent misuse that have been obscured by rhetoric in the opinions. The second part then proceeds to offer reasons for the contraction of patent misuse over the years. In particular, it examines the effect the Patent Misuse Reform Act of 1988 and federal appellate jurisprudence on re-delineating the scope of patent misuse. The final part concludes with observations on relevant areas suitable for the application of a reinvigorated patent misuse doctrine. In this regard, the relevant literature, as well as courts and commentators, point to licensing misconduct involving standard setting organizations and settlements between owners of patented drugs and generic drug companies as examples where patent misuse may meaningfully contribute. In addition, patent misuse has also been identified as providing an important foundation for derivative doctrines, such as copyright misuse, to take root and flourish.

The study juxtaposes language from judicial opinions with statistics and insights from interviewees where appropriate. The significant question for this paper is not which view of patent misuse is best. Rather the focus is on determining the scope of patent misuse according to court opinions and perceptions in practice.

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

Competition in Health Care Markets

Posted D. Daniel Sokol

Martin S. Gaynor, Carnegie Mellon University has posted Competition in Health Care Markets.

ABSTRACT: This paper reviews the literature devoted to studying markets for health care services and health insurance. There has been tremendous growth and progress in this field. A tremendous amount of new research has been done in this area over the last 10 years. In addition, there has been increasing development and use of frontier industrial organization methods. We begin by examining research on the determinants of market structure, considering both static and dynamic models. We then model the strategic determination of prices between health insurers and providers where insurers market their products to consumers based, in part, on the quality and breadth of their provider network. We then review the large empirical literature on the strategic determination of hospital prices through the lens of this model. Variation in the quality of health care clearly can have large welfare consequences. We therefore also describe the theoretical and empirical literature on the impact of market structure on quality of health care. The paper then moves on to consider competition in health insurance markets and physician services markets. We conclude by considering vertical restraints and monopsony power.

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

A theoretical model of collusion and regulation in an electricity spot market

Posted by D. Daniel Sokol

Diego Escobari, The University of Texas - Pan American provides A theoretical model of collusion and regulation in an electricity spot market.

ABSTRACT: This paper presents a theoretical model of collusion and regulation in a wholesale electricity spot market. Given a demand for electricity, competing generators report their marginal costs. Then, only generators with the lowest marginal costs are selected to sell at a price equal to the marginal costs of the last generator selected to sell. The results show that under a fixed price level it is a weakly dominant strategy to truthfully report the marginal cost. Variable (or endogenous) prices create the possibility of profitable collusion among generators. With uncertainty in the marginal costs and risk neutrality, the results show that a necessary condition for collusion to be sustainable is that the marginal cost reported by the pivot (marginal generator) should be higher than the average of the true marginal costs of all the generators. The existence of collusion fines and audit probabilities were found to be effective in deterring collusion. It is also shown that more efficient generators have less incentive to collude.

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