Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, April 13, 2012

Does Cost Uncertainty in the Bertrand Model Soften Competition?

Posted by D. Daniel Sokol

Johan N. M. Lagerlof, University of Copenhagen - Department of Economics, Centre for Economic Policy Research (CEPR) asks Does Cost Uncertainty in the Bertrand Model Soften Competition?

ABSTRACT: Although naive intuition may indicate the opposite, the existing literature suggests that uncertainty about costs in the homogeneous-good Bertrand model intensifies competition: it lowers price and raises total surplus (but also makes profits go up). Those results, however, are derived under two assumptions that, if relaxed, conceivably could reverse the results. The present paper first shows that the results hold also if drastic innovations are possible. Next, the paper assumes asymmetric cost distributions, a possibility that is empirically highly plausible but which has been neglected in the previous literature. Using numerical methods it is shown that, under this assumption, uncertainty lowers price and raises total surplus even more than with identical distributions. However, if the asymmetry is large enough, industry profits are lower under uncertainty; this is in contrast to the known results and reinforces the notion that uncertainty intensifies competition rather than softens it.

April 13, 2012 | Permalink | Comments (0) | TrackBack (0)

Seal Breaking—Practical Compliance Lessons from Recent Cases

Posted by D. Daniel Sokol

Anne Riley (Shell) Seal Breaking—Practical Compliance Lessons from Recent Cases.

ABSTRACT: A breach of a seal affixed by the European Commission during an unannounced inspection (or ‘dawn raid’) of itself constitutes a serious infringement of European competition law which is likely to attract a very heavy fine.

There is no requirement on the European Commission to show any intention on the part of a company being investigated to breach the seal, or to show evidence that documents were actually taken from the site.

The article considers the factual differences in the European Commission's reported decisions fining companies for obstruction by tampering with a European Commission seal affixed during a dawn raid.

The article seeks to draw out some practical suggestions that companies and their advisors may wish to take into account when dealing with antitrust investigations.

April 13, 2012 | Permalink | Comments (0) | TrackBack (0)

Edingburgh Law School MacCormick Visiting Fellowship

Posted by D. Daniel Sokol

Edinburgh Law School is delighted to be able to offer the prestigious MacCormick Visiting Fellowship. Each year, a number of fellowships are offered in memory of our late esteemed colleague, Professor Sir Neil MacCormick former Regius Professor of Public Law and the Law of Nature and Nations. Fellowships are open to scholars in any field of legal study and will fund travel and accommodation expenses for the visit of up to £3000.

For over 300 years the University of Edinburgh has been providing world-class education and research in law, and Edinburgh Law School now has one of the most vibrant and dynamic research communities in the world. With over 1000 undergraduates, 400 postgraduates and 68 academic staff, the Law School provides world-leading research, which endeavours to have local, national and international reach and impact. Our broad range of research areas are on the cutting edge of modern legal research and the majority of our staff are considered leading experts in their field. In the most recent Research Assessment Exercise, the School was ranked 1st in Scotland and 10th in the UK for research excellence, and we are consistently ranked amongst the top 40 Law Schools in the World.

Edinburgh Law School hosts several leading research Centres and projects across our fields of interest including:

• The Edinburgh Centre for Private Law

• The Edinburgh Centre for Constitutional Law

• The Centre for Law and Society

• AHRC Centre for Studies in Intellectual Property and Technology Law

• The Europa Institute

• The Scottish Centre for International Law

• The Centre for Commercial Law

• The Centre for Legal History

• The Empirical Legal Research Network

• The Applied Quantitative Methods Network (AQMeN)

• The Europeanisation of Citizenship in the Successor States of the Former Yugoslavia (CITSEE)

• The Mason Institute

We would hereby like to invite applications from scholars at any stage of their career to apply for the MacCormick Fellowship. As a fellow you will be able to take advantage of the School’s rich research community, our Law Library, which is one of the most well-stocked and holds one of the largest legal collections in the UK, and present a seminar to staff and students on your work. Based in the Old College – the original seat of the Law School since 1707 – you will be at the Centre of the legal heart of Edinburgh with both the Sheriff and Criminal Courts, the Scottish Government and parliament just a short walk away.

For more information on the fellowship and application details, please visit the Edinburgh Law School website: www.law.ed.ac.uk/visitors/maccormickfellowships.aspx

April 13, 2012 | Permalink | Comments (0) | TrackBack (0)

The Residex case of the European Court: when do guarantees constitute illegal State aid?

Posted by D. Daniel Sokol

Steven Verschuur (Clifford Chance) and Lauri ten Hove ask The Residex case of the European Court: when do guarantees constitute illegal State aid?

ABSTRACT: National courts can cancel a guarantee that constitutes unlawful State aid if that cancellation can restore the competitive situation which existed before the guarantee was granted and if there are no less onerous procedural measures to do so.

April 13, 2012 | Permalink | Comments (1) | TrackBack (0)

Thursday, April 12, 2012

Market Structure and Market Performance in E-Commerce

Posted by D. Daniel Sokol

Franz Hackl, University of Linz - Department of Economics, Michael Kummer, Johannes Keppler University, Rudolf Winter-Ebmer, University of Linz - Department of Economics, Institute for Advanced Studies (IHS) - Department of Economics & Finance, Centre for Economic Policy Research (CEPR), Institute for the Study of Labor (IZA), and Christine Zulehner, University of Vienna - Faculty of Business, Economics, and Statistics, Austrian Institute of Economic Research (WIFO) have a new paper on Market Structure and Market Performance in E-Commerce.

ABSTRACT: We investigate the effect of market structure on market performance in the market for consumer electronics. We exploit product life cycle information to build an instrumental variable for the number of firms in a market, a variable which hitherto had to be treated as exogenous in comparable studies on seller-behavior in e-commerce. We combine data from Austria's largest online site for price comparisons with retail data on wholesale prices provided by a major hardware producer for consumer electronics. We observe input prices of firms, and all their moves in the entry and the pricing game. Using this information for 70 digital cameras, we generate instrumental variables based on the shops' entry decisions in the past. We find that instrumenting is particularly important for estimating the effect of competition on the markup of the price leader.

April 12, 2012 | Permalink | Comments (0) | TrackBack (0)

Loyalty Rebates and the Competitive Process

Posted by D. Daniel Sokol

Hans Zenger (Charles River Associates) has written on Loyalty Rebates and the Competitive Process.

ABSTRACT: The degree of divergence between U.S. and European case law on the proper legal treatment of loyalty rebates is larger than in almost any other field of international antitrust law. Whereas U.S. jurisprudence has traditionally considered loyalty rebates to be a pro-competitive business practice, the Court of Justice of the European Union has repeatedly held that loyalty rebates are an illegal means of distorting competition. This article challenges the Community Courts’ conviction that loyalty rebates do not constitute competition on the merits and claims the opposite. The adoption of loyalty rebates is a direct consequence and a vital expression of the competitive process. The need for different forms of loyalty rebates naturally emerges from the diverse market conditions that prevail in different industries, which explains the widespread use of diverse loyalty rebates in business practice. It is the heterogeneity of commercial pressures that dominant firms are facing which determines the competitive structure and size of their rebates. By suppressing competition in rebates, orthodox legal doctrine in Europe has distorted the competitive process in a variety of global markets and thereby caused significant harm to competition and consumers. Since loyalty rebates are an efficient and healthy form of competition, plaintiffs and competition authorities that allege anti-competitive foreclosure as a result of loyalty rebates should generally carry the burden of proving the existence of a restriction of competition. The Court’s prevailing interpretation of Article 102 TFEU, by contrast, is bound to punish successful innovators and to protect less effective rivals from the inconveniences of the competitive process.

April 12, 2012 | Permalink | Comments (0) | TrackBack (0)

Quantifying Antitrust Damages—Convergence of Methods Recognized by U.S. Courts and the European Commission

Posted by D. Daniel Sokol

Claire M. Korenblit (Sidley Austin) discusses Quantifying Antitrust Damages—Convergence of Methods Recognized by U.S. Courts and the European Commission.

ABSTRACT: The degree to which plaintiffs pursue antitrust damages actions in the United States and the European Union varies considerably. For almost 100 years, private enforcement of the antitrust laws through damages actions has played a major role in the development of U.S. antitrust jurisprudence. In the European Union, although private suits have increased in number in recent years, successful actions are infrequent, and legislative advances are piecemeal and limited to certain jurisdictions.

In its 2005 Green Paper on damages actions for breach of the EU antitrust rules, the Commission identified difficulties in quantifying the harm suffered by injured parties as one of the key stumbling blocks in antitrust damages actions in the European Union. Subsequently, in its 2008 White Paper, the Commission announced its intention to draw up a framework with pragmatic, non-binding guidance on quantifying the harm suffered in such actions. Most recently, in June 2011, the Commission released for comment a draft guidance paper on quantification of damages for EU antitrust violations (the "Guidance Paper"). The Guidance Paper is intended to provide guidance to courts and parties to damages actions on the calculation of harm from antitrust infringements.

The Commission has declared, "the legal framework for more effective antitrust damages actions should be based on a genuinely European approach." Yet damages for competition law infringements have been awarded by courts in very few Member States, and "[o]f those cases, the economic models used to calculate damages appear to have been fairly simplistic." With more than a century of private antitrust litigation, U.S.-developed case law and quantification methods may therefore provide valuable lessons for quantifying antitrust damages in European private actions. As described below, the procedural and quantitative methods for calculating antitrust damages outlined in the Guidance Paper are in fact generally consistent with the typical approaches to damage estimations recognized and approved by U.S. federal courts.

April 12, 2012 | Permalink | Comments (0) | TrackBack (0)

A Primer on Green Technology and Antitrust: The Case of the Electric Car

Posted by D. Daniel Sokol

Bert Foer, American Antitrust Institute (AAI) offers A Primer on Green Technology and Antitrust: The Case of the Electric Car.

ABSTRACT: This paper, a summary of which was presented to a conference of the Practicing Law Institute on Green Technology Law and Business, February 24, 2012, provides a primer on antitrust as likely to be applied to “green” or “clean” technology. It focuses on the concerns an antitrust enforcer might have in reviewing the emerging electric car industry.

April 12, 2012 | Permalink | Comments (1) | TrackBack (0)

Wednesday, April 11, 2012

Indirect evidence of a cartel in the GIS judgments saga

Posted by D. Daniel Sokol

Maria Luisa Tierno Centella (DG Competition) addresses Indirect evidence of a cartel in the GIS judgments saga.

ABSTRACT: Indirect evidence in the GIS case corroborated that the Japanese members of the GIS cartel committed to refrain from competition in Europe.

April 11, 2012 | Permalink | Comments (0) | TrackBack (0)

Cooperation between National Competition Authorities in the EU in Multijurisdictional Merger Cases—the Best Practices of the EU Merger Working Group

Posted by D. Daniel Sokol

Andreas Bardong, Bundeskartellamt discusses Cooperation between National Competition Authorities in the EU in Multijurisdictional Merger Cases—the Best Practices of the EU Merger Working Group.

ABSTRACT: With the Best Practices, national competition authorities (‘NCAs’) and the European Commission intend to enhance cooperation between NCAs in multijurisdictional merger cases.

In addition to NCAs it is also the merging parties that can facilitate cooperation, in particular by providing waivers of confidentiality and by timing their notifications in a way that NCAs can investigate the case in parallel.

In the consultation, the draft document was welcomed by most commentators—but many issues were raised, including the treatment of confidential information, burdens on merging parties, cooperation during pre-notification, designation of a lead authority, and referrals.

April 11, 2012 | Permalink | Comments (0) | TrackBack (0)

The UK Tobacco Case: Restrictions by Object in Vertical Agreements

Posted by D. Daniel Sokol

Alison Jones (Kings College) and Alessandro Turati (Freshfields) describe The UK Tobacco Case: Restrictions by Object in Vertical Agreements.

ABSTRACT: The Office of Fair Trading (OFT) adopted a broad interpretation of what constitutes a restriction by object in its Tobacco decision, relying on the European Court of Justice's (ECJ's) judgment in T-Mobile Netherlands.

The decision was annulled by the Competition Appeal Tribunal (CAT) on appeal as the OFT was not able to put forward sufficient evidence to support the findings of infringement set out in its Decision.

The CAT's ruling has been handed down at a critical time as the UK government is in the process of making its final decision on a number of aspects of UK competition law reform, including whether to require the UK competition authority to prosecute antitrust cases before the CAT.

April 11, 2012 | Permalink | Comments (0) | TrackBack (0)

Evaluating Antitrust Leniency Programs

Posted by D. Daniel Sokol

Joan-Ramon Borrell Arqué, University of Barcelona, Juan Luis Jimenez, University of Las Palmas de Gran Canaria and Carmen Garcia are Evaluating Antitrust Leniency Programs.

ABSTRACT: This paper identifies and then quantifies econometrically the impact of leniency programs on the perception of the effectiveness of antitrust policies using country level panel data for a 10-year span. Leniency programs have been introduced gradually in antitrust legislation across the globe to fight more effectively against cartels. We use the dynamics of the diffusion of such policy innovation across countries and over time to evaluate the impact of the program. We find that leniency programs have had a significant impact on the perception among the business community of the effectiveness of each country's antitrust policy. Leniency programs have become weapons of mass dissuasion in the hands of antitrust enforcers against the more damaging forms of explicit collusion among rival firms in the market place.

April 11, 2012 | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 10, 2012

The Innocence Effect

Posted by D. Daniel Sokol

Oren Gazal-Ayal University of Haifa - Faculty of Law and Avishalom Tor Notre Dame Law School discuss The Innocence Effect.

ABSTRACT: Nearly all felony convictions — about 95% — follow guilty pleas, suggesting plea offers are very attractive to defendants compared to trials. Some scholars even argue that plea bargains are too attractive and should be curtailed because they facilitate the wrongful conviction of innocents. Others contend that plea offers only benefit innocent defendants, providing an alternative to the risk of a harsher sentence at trial they may wish to avoid. Hence, even while heatedly disputing their desirability, both camps in the debate believe plea bargains commonly lead innocents to plead guilty. This article shows, however, that the belief innocents routinely plead guilty is overstated. We provide field and laboratory evidence for the hitherto neglected “innocence effect,” revealing that innocents are significantly less likely to accept plea offers that appear attractive to similarly-situated guilty defendants in light of the expected sanction at trial.

The article further explores the psychological causes of the innocence effect and examines its implications for plea bargaining: Positively, we identify the striking “cost of innocence,” wherein innocents suffer harsher average sanctions than similarly-situated guilty defendants. Yet our findings also show that the innocence effect directly causes an overrepresentation of the guilty among plea bargainers and the innocent among those choosing trial. In this way, the effect beneficially reduces the rate of wrongful convictions, even when compared to a system that does not allow plea bargaining. Normatively, our analysis finds both detractors and supporters of plea bargaining should reevaluate, if not completely reverse, their long-held positions to account for the innocence effect, its causes and consequences. The Article concludes by outlining two proposals for minimizing false convictions, better protecting the innocent, and improving the plea bargaining process altogether by accounting for the innocence effect.

April 10, 2012 | Permalink | Comments (0) | TrackBack (0)

Private Enforcement of Antitrust Law in Japan: An Empirical Analysis

Posted by D. Daniel Sokol

Simon Vande Walle, (University of Tokyo) has written on Private Enforcement of Antitrust Law in Japan: An Empirical Analysis.

ABSTRACT: This article assesses the role of private antitrust litigation in Japan through an empirical analysis. An attempt was made to collect data concerning all actions for damages and injunctive relief in the post-war era. Based on this data, the article gauges how much private antitrust litigation has contributed to the deterrence of antitrust violations, compared to public enforcement by the Japan Fair Trade Commission. It also evaluates to what extent private antitrust litigation has achieved compensation for those harmed by antitrust violations. The article includes findings on (1) the number of private antitrust actions, (2) the types of antitrust infringements invoked (bid-rigging, cartels other than bid-rigging, monopolization and unfair trade practices), (3) the success rate of antitrust litigation, (4) the magnitude of the damages awards and settlements, (5) the proportion of stand-alone versus follow-on cases, and (6) the kind of plaintiffs that have recovered damages.

April 10, 2012 | Permalink | Comments (0) | TrackBack (0)

Market Reactions to European Merger Regulation: A Reexamination of the Protectionism Hypothesis

Posted by D. Daniel Sokol

Nihat Aktas, Skema Business School, Eric de Bodt, Universite Lille Nord de France - Lille School of Management Research Center (LSMRC), Marieke Delanghe, Univ. Lille Nord de France - SKEMA Business School and Richard W. Roll, University of California, Los Angeles (UCLA) - Finance Area have an interesting paper on Market Reactions to European Merger Regulation: A Reexamination of the Protectionism Hypothesis.

ABSTRACT: This article revisits the protectionism hypothesis related to the European merger regulation (EMR). In the 1990s, EMR was biased against foreign acquirers, especially if the deal harmed domestic rivals (i.e., protectionism). At the end of the 20th century and at the beginning of the 21st, the European Commission (EC) has been criticized in the financial press to have blocked mergers between US companies which have been approved by the US authorities. In addition, in 2002, the Court of First Instance overturned three prohibitions by the EC and criticized its economic analysis. These events hastened EMR reform, including amendments introduced in May 2004. Previous empirical studies find evidences of protectionism of the EC in the 1990s. With a sample of 474 merger proposals submitted to the EC during 1990–2007, we show that the EC’s protectionism from the 1990s did not extend into more recent periods. We implement for this an analysis of the probability of intervention of the EC. It turns out that, when domestic rivals are harmed by an operation, the EC does not seem anymore more inclined to intervene when the bidder is non-European. The change of policy toward foreign acquirers seems rooted in Court judgments of 2002 and subsequent regulatory reforms.

April 10, 2012 | Permalink | Comments (0) | TrackBack (0)

Does Banking Competition Alleviate or Worsen Credit Constraints Faced by Small and Medium Enterprises? Evidence from China

Posted by D. Daniel Sokol

T.T.L. Chong, L. Lu, and S. Ongena (Tilburg University, Center for Economic Research) ask Does Banking Competition Alleviate or Worsen Credit Constraints Faced by Small and Medium Enterprises? Evidence from China.

ABSTRACT: Banking competition may enhance or hinder the financing of small and medium enterprises. Using a survey on the financing of such enterprises in China, combined with detailed bank branch information, we investigate how concentration in local banking market affects the availability of credit. We find that lower market concentration alleviates financing constraints. The widespread presence of joint-stock banks has a larger effect on alleviating these constraints, than the presence of city commercial banks, while the presence of state-owned banks has a smaller effect.

April 10, 2012 | Permalink | Comments (0) | TrackBack (0)

Book Launch Party - The Concept of Abuse in EU Competition Law: Law and Economic Approaches

Posted by D. Daniel Sokol

Dr Pinar Akman and the ESRC Centre for Competition Policy would like to invite you to Lincoln’s Inn, London, on 3rd May 2012 to celebrate the launch of Pinar’s first book The Concept of Abuse in EU Competition Law: Law and Economic Approaches. The event is held in conjunction with the Inn’s Eurogroup and will attract 1.5 CPD points.

Dr Akman will give a short speech on "Some new thinking on the EU prohibition of abuse of dominance" which will be followed by a panel discussion led by Thomas Sharpe QC and featuring Prof Richard Whish (King’s College London) and Peter Freeman CBE QC.

The event will start at 5.30pm and conclude around 7.30pm. Drinks will be served at the conclusion of the panel, supported by the publisher, Hart Publishing.

Copies of The Concept of Abuse in EU Competition Law will be available for sale at the launch at the discount price of £40 (RSP: £60).

If you would like to attend please RSVP to Suzy Adcock (s.adcock@uea.ac.uk) as soon as possible as places are limited and we expect demand to be strong.

April 10, 2012 | Permalink | Comments (0) | TrackBack (0)

Coalitions in the airline industry: an empirical approach

Posted by D. Daniel Sokol

David Bartolini (Department of Economics, Universita Politecnica delle Marche) and Alberto Gaggero (Department of Economics, University of Pavia) write on Coalitions in the airline industry: an empirical approach.

ABSTRACT: This paper conducts an empirical analysis of the determinants of airline alliances. Well established airlines with large passengers' volumes are more likely to participate in an alliance and are also essential for alliance survivability. In line with this finding, older air-lines have a higher probability of being part of an alliance. Airlines operating with high load factors consider alliance participation as a significant alternative to fleet capacity expansion. As their market share grows, alliances become more appealing to airlines. Competitors' decision to enter an alliance tends to have a positive impact on alliance participation. The relatively similar magnitude and effect of the regressors' coefficients across different alliance choices, suggests that the airline's major decision is not to choose a specific alliance, but rather considering whether to enter into an alliance, as a possible strategy within its business model.

April 10, 2012 | Permalink | Comments (0) | TrackBack (0)

Monday, April 9, 2012

Traffic Management: The Respective Roles of Competition Law and Regulation

Posted by D. Daniel Sokol

Frank Maier-Rigaud (OECD) discusses Traffic Management: The Respective Roles of Competition Law and Regulation.

ABSTRACT: The internet traffic prioritization, traffic management, or network neutrality debate (however it is labeled) fundamentally centers on the question of how packet inspection technology can be used and, more specifically, if data packet inspection should be used to differentiate price and or quality. As most ISPs operate based on flat-rate contracts, end users typically face no incentive to constrain their use of the internet as their marginal cost for generating traffic is zero. As soon as congestion on the network occurs, however, the marginal cost of additional traffic becomes strictly positive. The economic efficiency of flat-rate tariffs is therefore dependent on total marginal cost being zero, something that is only the case for traffic below maximum capacity, i.e. in the absence of congestion. When congestion occurs, the effects are asymmetric as some services will not be or only marginally be affected by congestion, whereas other services such as online gaming, for example, may be substantially degraded or may not work at all.

Similar to electricity grids where, in theory, electricity prices could be adjusted depending on capacity utilization with an aim to spreading energy consumption in an efficient fashion over the day-mimicking generation patterns-data transfer could be based on life pricing. As this is difficult to implement in a transparent way for end users, traffic management may be a more efficient way to realize the same effects. It also appears superior to daily price schedules based on historic values.

April 9, 2012 | Permalink | Comments (0) | TrackBack (0)

Differentiated Duopoly and Horizontal Merger Profitability under Monopoly Central Union and Convex Costs

Posted by D. Daniel Sokol

Luciano Fanti (Department of Economics, University of Pisa, Italy) and Nicola Meccheri (Department of Economics, University of Pisa, Italy) write on Differentiated Duopoly and Horizontal Merger Profitability under Monopoly Central Union and Convex Costs.

ABSTRACT: Can a merger from duopoly to monopoly be detrimental for profits? This paper deals with this issue by focusing on the interaction between decreasing returns to labour (which imply firms’ convex production costs) and centralised unionisation in a differentiated duopoly model. It is pointed out that the wage fixed by a monopoly central union in the post-merger case is higher than in the pre-merger/Cournot equilibrium, opening up the possibility that merger reduces profits. Indeed, it is shown that this “reversal result” actually applies when the central union is sufficiently little interested to wages with respect to employment. Moreover, the lower the degree of substitutability between firms’ products and the higher the workers’ reservation wage, the higher ceteris paribus the probability that profits decrease as a result of the merger.

April 9, 2012 | Permalink | Comments (0) | TrackBack (0)