Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, December 3, 2011

Telecom Gets Tricker - Verizon Responds to AT&T/T-Mobile with deals with Comcast, Time Warner Cable, and Bright House Networks

Posted by D. Daniel Sokol

Every day the AT&T antitrust saga gets more interesting.  Yesterday news services reported that Verizon has responded to AT&T/T-Mobile with deals with Comcast, Time Warner Cable, and Bright House Networks to purchase sctrum.

December 3, 2011 | Permalink | Comments (0) | TrackBack (0)

Friday, December 2, 2011

Markets in Merger Analysis

Posted by D. Daniel Sokol

Herbert J. Hovenkamp, University of Iowa - College of Law has an interesting and well thought out paper on Markets in Merger Analysis.

ABSTRACT: Antitrust merger policy suffers from a disconnect between its articulated concerns and the methodologies it employs. The Supreme Court has largely abandoned the field of horizontal merger analysis, leaving us with ancient decisions that have never been overruled but whose fundamental approach has been ignored or discredited. As a result the case law reflects the structuralism of a bygone era, focusing on industrial concentration and market shares, largely to the exclusion of other measures of competitive harm, including price increases. Only within the last generation has econometrics developed useful techniques for estimating the price impact of specific mergers in differentiated markets – so called “unilateral effects” analysis.

In Brown Shoe the Supreme Court equated the newly amended merger law’s phrases “line of commerce” and “section of the country” with relevant product and geographic markets. When it drafted those phrases, however, Congress almost certainly did not have technical definitions of relevant markets in mind. “Line of commerce” was commonly used to describe a particular “line” of business, such as clothing or groceries. A “line” could include complements as well as substitutes. The phrase “section of the country” was intended to create jurisdictional limits. Mainly, Congress wanted to make sure that the Clayton Act’s reach would be limited to mergers whose impact was felt in the United States rather than abroad.

While Brown Shoe required definition of a relevant market, its rationale was fundamentally at odds with the rationale for market definition in horizontal merger cases today. The Court was not thinking of a relevant market as a grouping of sales capable of being monopolized or cartelized. The perceived injury in Brown Shoe was not that the merger threatened higher prices from increased concentration in the shoe market – thus benefitting rivals but harming customers. Rather, the concern was that post-merger Brown Shoe would acquire a competitive advantage over its competitors. Indeed, Brown Shoe was a “unilateral effects” case in the sense that its concern was not with market wide collusion, but rather with the likelihood that the post-merger firm would be able to undersell other firms within the same market.

Viewed in historical perspective, Brown Shoe should serve to give antitrust policy makers far greater latitude to develop merger assessment methodologies that are not wed to traditional market definition concepts. Not only do they serve us poorly today, they are not what the Supreme Court had in mind in the first place.

December 2, 2011 | Permalink | Comments (0) | TrackBack (0)

A Tort-Based Causation Framework for Antitrust Analysis

Posted by D. Daniel Sokol

Michael A. Carrier, Rutgers University School of Law - Camden offers A Tort-Based Causation Framework for Antitrust Analysis.

ABSTRACT: Causation is one of the most underexplored areas in antitrust law. What must a plaintiff show to connect a defendant’s conduct with anticompetitive effects? Several tests are possible, including “but for” causation, proximate cause, sole causation, reasonable connection, and increased possibility of harm. Courts have applied variations of all these tests. This article focuses on the two settings in which the issue of antitrust causation has most often arisen: monopolization cases and, more generally, cases addressing antitrust injury.

Some of the most difficult causation issues occur in monopolization cases. One such issue involves determining the counterfactual scenario of what would have happened absent the monopolist’s conduct. A second occurs when both the monopolist’s actions and other events cause the injury to competition. In this setting, courts have diverged on whether the presence of other causes precludes a finding of monopolization.

In dynamic high-technology markets, these issues are even more challenging. It is not easy to hypothesize the path not taken in a rapidly changing market or to separate the effects of the monopolist’s conduct from those of other events affecting the market’s development. These difficulties are compounded because of the concern of punishing unilateral conduct and because the standards articulated by courts in monopolization cases are often not clear.

The second antitrust setting in which courts have frequently addressed causation is the analysis of antitrust injury. The Supreme Court and lower courts have famously explored whether a plaintiff suffers injury “of the type that the antitrust laws were intended to prevent and that flows from that which makes the defendants’ acts unlawful.” This inquiry is designed to ensure that the plaintiff is able to show harm to “competition not competitors.”

This article examines these causation issues and gains insights by turning to tort law, the law with the most developed causation framework. It focuses on two core concepts of causation in tort law, factual and legal cause. As exported to antitrust law, the tort factual cause inquiry would ask if a plaintiff can show a “reasonable connection” between the challenged conduct and the anticompetitive effects. This range of potential causes is limited by the requirement of legal causation, which would determine if a plaintiff’s harm results from anticompetitive — as opposed to other — conduct.

December 2, 2011 | Permalink | Comments (0) | TrackBack (0)

Forget Antitrust and Judaism - the Best Program on TV Has got to Be the BBC's "Old Jews Telling Jokes"

Posted by D. Daniel Sokol

On Monday I moderated an excellent program for the ABA Section of Antitrust Law on Antitrust and Judaism. It should be up shortly on the ABA's website. I note with great enthusiasm a new show that Ariel Ezrachi (Oxford - Law) has brought to my attention - BBC4's Old Jews Telling Jokes. The show is exactly what the title suggests - a bunch of old Jewish men (and ocassionally women) telling jokes. Some are off color and some are family friendly. One of my favorites involved a guy who started telling the joke in English and then switched to Yiddish (for which subtitles were provided).

A number of the segments are available for free on ITunes.

December 2, 2011 | Permalink | Comments (0) | TrackBack (0)

Estimating the Degree of Buyers' Market Power: Evidence from the Ukrainian Meat Processing Industry

Posted by D. Daniel Sokol

Oleksandr Perekhozhuk, Andriy Matyukha and Thomas Glauben, Leibniz Institute of Agricultural Development in Central and Eastern Europe describe Estimating the Degree of Buyers' Market Power: Evidence from the Ukrainian Meat Processing Industry.

ABSTRACT: This study develops a structural market model for the econometric analysis of buyers’ market power in the Ukrainian meat processing industry, because there is some evidence that suggests that meat processors may excise market power in the agricultural market of slaughtered livestock. The estimation results did not produce any evidence suggesting the existence of buyers’ market power. Contrary to many other NEIO-studies, we extended the market structure market model by the three subsequent models. Using endogenously determined values for market power parameter, we found that meat processors concerning the buyers’ market for slaughtered livestock behave consistently with Cournot conjectures.

December 2, 2011 | Permalink | Comments (0) | TrackBack (0)

Thursday, December 1, 2011

Interformat price competition of multi-product retailers: Evidence for German grocery retailing

Posted by D. Daniel Sokol

Angela Hoffmann and Heike Senkler, Department of Agricultural Economics Christian-Albrechts-University Kiel discuss Interformat price competition of multi-product retailers: Evidence for German grocery retailing.

ABSTRACT: If rivalry in German grocery retailing sector was restricted to intraformat price competition one would expect significantly different price levels to be realized by discount stores (low), hypermarkets (medium) and supermarkets (high). The greatest similarities in price levels would be within the store formats. Assuming a two-step store choice process, we present a conception of intra- and interformat competition that combines the three meaningful dimensions of retail competition (assortment, pricing and transaction costs). Based on this idea, we investigate the interformat price competition. Given the multi-product character of retailers and assuming that consumers make their store choice on the basis of price images instead of searching for item-by-item price information, we analyze weighted price level series from up to 80 stores (5 companies) from retail scanner data from the German grocery retail sector (2000/2001). The empirical investigation can give us insights into the interformat price competition and the importance of the pricing dimension in retail competition that we sum up as follows. Our results strongly confirm that all three formats are partly engaged in interformat competition and do not approve the exclusive price leadership of discount stores. Super- and hypermarkets generally are not following the pricing of discount stores; neither in the main assortment (top-selling brands) nor in the low-price range, although the low-price levels appear to be very similar in all formats. The last fact confirms that German retailers themselves regard their (low) price image to be essential for succeeding in competition. Our empirical investigation shows that this hypothesis holds only for supermarkets. We figure out an alternative understanding of the formation of interformat price competition. Contrary to the common belief that discounters are the price leaders and that the format itself does determine the success in interformat price competition, we identify the profiteers of interformat competition by their active efforts in the dimension being originally not part of their marketing strategy. Thus, those discount stores succeed that enlarge their assortment by manufacturer brands and offer price promotions; and so do supermarkets that have a low price image. Thereby HILO strategy (frequent price promotions) can be as effective as EDLP to communicate the ‘right’ price image – the price image that attracts consumers of the interformat competition segment. In contrast, stores that maintain their core competence and remain beyond interformat competition do not only fail in interformat competition but in intraformat competition as well. In particular, some supermarkets seem to fail in the whole market because they do not actively revise their strategy and their image. Again, we mention the image as it can be a link between a common (price) strategy and the chain’s achievement in interformat price competition. It seems to be more likely to be in the consumers’ evoked set of store choice when pricing strategies are consistent within the same chain. Also, most price levels seem to be relatively consistent over time. So price level information from the past last very long and consumers decide ‘right’ if they use internal price information (experience) planning the next shopping trip. Nevertheless, what happens if consumers notice a price rise in their chosen (favorite) store? By what means can they make a quick and check whether price levels in other stores have also risen? Frequently advertised product prices (i.e. like butter and coffee prices) are supposed to signal the overall price level of the store. Future research should investigate the existence and the attributes of signpost items.

December 1, 2011 | Permalink | Comments (0) | TrackBack (0)

Measuring market power in the Greek food and beverages manufacturing industry

Posted by D. Daniel Sokol

Anthony N. Rezitis & Maria A. Kalantzi, Department of Business Administration of Food and Agricultural Enterprises, University Western Greece, are Measuring market power in the Greek food and beverages manufacturing industry.

ABSTRACT: This paper measures the degree of market power of the Greek food and beverages manufacturing industry over the period 1983–2007 at the three-digit SIC level. The present study also estimates the “deadweight” loss and the reduction of consumers’ income due to the possible existence of market power in the Greek food and beverages manufacturing industry. Based on Bresnahan’s (1989) conjectural variation model, three different approaches are used to investigate competitive conditions of the Greek food and beverages manufacturing industry. The first approach assesses the extent of market power of the whole industry over the period 1983–2007; the second approach tests the degree of market power in each one of the nine sectors of the industry over the whole period, i.e. 1983–2007; and the third one estimates the extent of market power for the whole Greek food and beverages manufacturing industry for specific sub-periods of the period 1983–2007. The methodology of Dickson and Yu (1989) is adopted to measure the welfare losses. The empirical results indicate the presence of some degree of market power in the whole Greek food and beverages manufacturing industry as well as in each one sector of the industry during the period 1983– 2007 and, as a result, the existence of welfare losses. In addition, the empirical findings support the presence of some degree of market power for each sub-period of the period 1983– 2007 in the whole Greek food and beverages manufacturing industry and the existence of welfare losses.

December 1, 2011 | Permalink | Comments (0) | TrackBack (0)

Price Promotions and Brand Loyalty: Empirical Evidence for the German Breakfast Cereals Market

Posted by D. Daniel Sokol

Janine Empen, Department of Agricultural Economics, University of Kiel, Jens-Peter Loy, Department of Agricultural Economics, University of Kiel and Christoph Weiss, Department of Economics, Vienna University of Business and Economics analyze Price Promotions and Brand Loyalty: Empirical Evidence for the German Breakfast Cereals Market.

ABSTRACT: Price promotions are important marketing activities for (food) retailers; brand loyalty is a major requisite to foster brands' assets. Several theoretical papers have analyzed the relationship between price promotions and brand loyalty resulting in mixed or perhaps contradictory outcomes; only a few empirical studies for (European) grocery markets are available to test which model(s) might be most relevant to reflect pricing strategies in food retailing. In this analysis, two detailed data sets for the German ready-to-eat breakfast cereals market are merged to investigate the relationship between price promotions and brand loyalty. We find significant empirical evidence that stronger brands tend to be promoted less frequently at lower discounts compared to weaker brands. The reason might be that price reductions are more costly for brands having loyal customers who are willing to accept higher mark-ups. Therefore stronger brands might need to come up with alternative measures to recruit new customers instead of offering attractive promotional sales.

December 1, 2011 | Permalink | Comments (0) | TrackBack (0)

Brazilian Passes its New Competition Law

Posted by D. Daniel Sokol

The new Brazilian Antitrust Law was published today, December 1, 2011.  The new Law shall enter into force within 180 days counted as from its publication.

HT: Marcio Soares

December 1, 2011 | Permalink | Comments (0) | TrackBack (0)

Market Dynamics in Supply Chains: The Impact of Globalisation and Consolidation on Food Companies' Mark-Ups

Posted by D. Daniel Sokol

Eleni A. Kaditi, Centre for European Policy Studies describes Market Dynamics in Supply Chains: The Impact of Globalisation and Consolidation on Food Companies' Mark-Ups.

ABSTRACT: This paper examines whether ownership and increased competitive pressure affect food retailersâ market power, analysing whether all actors involved in the food supply chain deviate from the pricing behaviour that exists under perfect competition. A method proposed by Roeger (1995) is used to estimate price-cost margins, relaxing the assumptions of perfect competition and constant returns to scale. The obtained results show that foreign investments and consolidation have a positive and significant impact on the market power of food processors and retailers. Food processors, agricultural producers and wholesalers have lower price-cost margins than retailers, which suggests that these actors price closer to marginal costs being more concerned with maximising social welfare or that the former have higher costs than retailers. The results are robust to various estimation techniques and specifications.

December 1, 2011 | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 30, 2011

Does hospital competition harm equity? Evidence from the English National Health Service

Posted by D. Daniel Sokol

Richard Cookson (Centre for Health Economics, University of York, UK), Mauro Laudicella (Imperial College Business School, London, UK) and Paolo Li Donni (Department of Economics, Finance and Business, University of Palermo, Italy) ask Does hospital competition harm equity? Evidence from the English National Health Service.

ABSTRACT: Increasing evidence shows that hospital competition under fixed prices can improve quality and reduce cost. Concerns remain, however, that competition may undermine socio-economic equity in the utilisation of care. We test this hypothesis in the context of the pro-competition reforms of the English National Health Service progressively introduced from 2004 to 2006. We use a panel of 32,482 English small areas followed from 2003 to 2008 and a difference in differences approach. The effect of competition on equity is identified by the interaction between market structure, small area income deprivation and year. We find a negative association between market dispersion and elective admissions in deprived areas. The effect of pro-competition reform was to reduce this negative association slightly, suggesting that competition did not undermine equity.

November 30, 2011 | Permalink | Comments (1) | TrackBack (0)

Horizontal Agreements in the Environmental Context

Posted by D. Daniel Sokol

When are horizontal agreements relating to environmental objectives necessary or efficient from a social perspective? When should they be discontinued pursuant to competition concerns? Such agreements can create interesting challenges for competition authorities.

The OECD today published Horizontal Agreements in the Environmental Context, a compilation of the materials presented and discussed at a Competition Committee roundtable held in October 2010. This publication, which includes an executive summary, a summary of the discussion and contributions by national delegations, is available at http://www.oecd.org/dataoecd/55/15/49139867.pdf.

November 30, 2011 | Permalink | Comments (1) | TrackBack (0)

Corporate Social Responsibility and Firms Ability to Collude

Posted by D. Daniel Sokol

Luca Lambertini and Alessandro Tampieri (University of Bologna) analyze Corporate Social Responsibility and Firms Ability to Collude.

ABSTRACT: We examine a duopoly with polluting production where firms adopt a form of corporate social responsibility (CSR) to define their objective functions. Our analysis focusses on the bearings of CSR on collusion over an infinite horizon, sustained by either grim trigger strategies or optimal punishments. Our results suggest that assigning a weight to consumer surplus has a pro-competitive e¤ect under both full and partial collusion. Conversely, a higher impact of productivity on pollution has an anti-competitive effect under partial collusion, while exerting no effect under full collusion. Under partial collusion, the analysis of the isoquant map of the cartel reveals that complementarity arises between the two weights.

November 30, 2011 | Permalink | Comments (0) | TrackBack (0)

Regulation of ATM fees in a model of spatial competition

Posted by D. Daniel Sokol

Karen Kaiser and Carlos Lever Guzman provide thoughts on Regulation of ATM fees in a model of spatial competition.

ABSTRACT: Following the Hotelling model of spatial competition used by Massoud and Bernhardt (2002) to analyze competition in ATM fees, in this paper we analyze the effects of banning fees on the usage of ATMs by account holders. We find that the prohibition also reduces the fees charged to non-account holders but increases fixed fees. This latter increase is on average smaller than the decrease of the former two, which leads total consumer welfare to increase. We also find that the prohibition decreases total surplus but that this decrease is absorbed by the banks' profits. The model does not consider the decision of banks to open or close down ATMs, which we leave for future research.

November 30, 2011 | Permalink | Comments (0) | TrackBack (0)

Antitrust Analysis of Merger Control: A Case Study on the Coca-Cola/Huiyuan Merger

Posted by D. Daniel Sokol

Wang Chuanhui and Ge Fei have published the first book treatment (in Chinese) on the failed Coco-Cola/Huiyuan proposed merger in their book Antitrust Analysis of Merger Control: A Case Study on the Coca-Cola/Huiyuan Merger.

The book consists of three parts. The first part provides a general analysis of the failed merger from antitrust and strategic perspectives. The second part provides an in-depth economic analysis of the relevant market, vertical restraints, economies of scale, and barriers to entry. The third part discusses the accountability and capacity building issues of China’s anti-monopoly enforcement agencies. The book also provides an analytical framework for the Coco-Cola/Huiyuan proposed merger and the Chinese translation of two relevant foreign decisions, the 2007 decision made by the Irish Competition Authority regarding the Britvic/C&C merger and the 2003 decision made by the Australian Competition and Consumer Commission on the Coca-Cola Amatil/Berri proposed merger.

November 30, 2011 | Permalink | Comments (0) | TrackBack (0)

Do States Free Ride in Antitrust Enforcement?

Posted by D. Daniel Sokol

Robert M. Feinberg and Thomas A. Husted (American University) ask Do States Free Ride in Antitrust Enforcement?

ABSTRACT: Recent research has documented a substantial role in antitrust enforcement by U.S. states. While many of the cases litigated involve small local firms, a non-trivial portion encompass multiplestate issues. Some previous literature has investigated whether states engage in free-riding behavior in environmental regulation, and whether governments free ride on private decisions in provision of public goods. In this paper, we analyze a sample of antitrust cases involving crossstate impacts (from the Multi-State Antitrust Database, provided by the National Association of Attorneys General) and explain the determinants of free-riding (which we define as participatingin a case, but not as a lead plaintiff).

November 30, 2011 | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 29, 2011

Excessive Pricing: The Flaws of ‘Tea Party’ Competition Policy

Posted by D. Daniel Sokol

Nicolas Petit (University of Liege) addresses Excessive Pricing: The Flaws of ‘Tea Party’ Competition Policy.

ABSTRACT: Since the adoption of the Guidance Communication in 2009, the Commission has kept exploitative abuses—and in particular excessive pricing cases—in a state of artificial hibernation, and focused on exclusionary cases as a matter of enforcement priority. The Commission's small antitrust policy against exploitative abuses is predicated on ‘ Tea Party’ competition economics: in the long term, high prices are presumed to deliver efficient outcomes, and competition enforcers risk doing more harm than good in trying to improve market outcomes.

Tea Party competition gurus are, however, wrong on three counts. First, they are wrong on the theory. Contrary to the ominous suspicion that competition agencies fiddle with excessive pricing laws to tax dominant firms' profits and achieve distributional transfers, there is a sound conceptual basis to justify the control of dominant firms' excessive prices.

November 29, 2011 | Permalink | Comments (1) | TrackBack (0)

Guilty of a Fault that one has not Committed. The Limits of the Group-Based Sanction Policy Carried out by the Commission and the European Courts in EU-Antitrust Law

Posted by D. Daniel Sokol

Stefan Thomas, Professor of Law at the Eberhard Karls University Tubingen discusses Guilty of a Fault that one has not Committed. The Limits of the Group-Based Sanction Policy Carried out by the Commission and the European Courts in EU-Antitrust Law.

ABSTRACT: The economic entity doctrine allows the Commission to fine a parent company if its subsidiary has infringed the competition rules. In such cases, the Commission holds the subsidiary and the parent jointly and severally liable. The EU Courts have acknowledged this sanctioning concept as based on an interpretation of the notion of “undertaking”. Group companies are deemed to form one unitary undertaking in terms of the competition rules. However, the economic entity doctrine faces increasing criticism. It is argued that being a parent can hardly suffice to establish liability for the infringement of the subsidiary. Also, the rule stating that a 100 % shareholder is presumed to form an economic entity with its subsidiary is seen to conflict with the in dubio pro reo principle. As far as joint and several liability is concerned, practical problems arise with respect to recourse litigation between the corporate entities. The practical significance of the problems is rising. Although the Court of Justice has espoused the economic entity doctrine, there are reports that a Dutch company has recently asked the European Court of Human Rights to rule on whether such a concept is compatible with the presumption of innocence. Moreover, the national Courts struggle with the problem of how to apportion liability between the jointly and severally liable group companies with respect to recourse claims. The General Court has recently tried to establish general principles in that respect in its Siemens/VA Tech judgment which, however, seem to have created further problems.

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

Exchange of Information as Restriction by Object? The STANPA Cases in Spain

Posted by D. Daniel Sokol

Alvaro Ramos (Cisco) asks Exchange of Information as Restriction by Object? The STANPA Cases in Spain.

ABSTRACT: Are exchanges of price and/or quantity information illegal where they have no impact on business behaviour or that impact is not established? The Commission appears to answer in the positive in the horizontal guidelines as it indicates that business decision sharing generally leads to cartels. That strict approach has recently been applied, in Spain, in two important cases.

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

Public Service and EU Competition Law

Posted by D. Daniel Sokol

Luc Gyselen (Arnold & Porter) explains Public Service and EU Competition Law.

ABSTRACT: It would seem that the jurisprudence regarding the application of competition law to public services is now settling progressively. This appears from the ruling issued by the ECJ in AG2R Prévoyance regarding the de-monopolisation of public services performing economic activities. A complementary approach is advocated by the Commission in a new Communication detailing the conditions under which financial assistance can be provided for the provision of services of general interest.

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