Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, August 10, 2012

A Fundamental Shift: Brazil’s New Merger Control Regime and Its Likely Impact on Cross-Border Transactions

Posted by D. Daniel Sokol

Fiona Schaeffer and Michael Culhane (Jones Day) describe A Fundamental Shift: Brazil’s New Merger Control Regime and Its Likely Impact on Cross-Border Transactions.

ABSTRACT: Brazil recently overhauled its merger control regime. Fiona Schaeffer and Michael Culhane Harper summarize and evaluate the changes in light of international best practices and provide insights on where pitfalls remain.

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

The Deterrence Effects of US Merger Policy Instruments

Posted by D. Daniel Sokol

Joseph A. Clougherty, University of Illinois, Urbana-Champaign and CEPR-London and Jo Seldeslachts, Department of Business Administration, University of Amsterdam and KU Leuven have a very interesting new article on The Deterrence Effects of US Merger Policy Instruments.

ABSTRACT: We estimate the deterrence effects of US merger policy instruments with respect to the composition and frequency of future merger notifications. Data from the Annual Reports by the US Department of Justice and Federal Trade Commission allow industry-based measures over the 1986–99 period of the conditional probabilities for eliciting investigations, challenges, prohibitions, court wins, and court losses: Deterrence variables akin to the traditional conditional probabilities from the economics of crime literature. We find the challenge rate to robustly deter future horizontal (both relative and absolute) merger activity, and the court-loss rate to moderately affect absolute levels of horizontal-merger activity; however, the investigation rate, prohibition rate, and court-win rate do not significantly deter future horizontal mergers. Accordingly, the conditional probability of eliciting an antitrust challenge (i.e. remedies and prohibitions) is unique among the different merger policy instruments as it yields a robust deterrence effect.

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

Review Essay: New Perspectives on International Antitrust

Posted by D. Daniel Sokol

Michal Gal (Haifa) has written Review Essay: New Perspectives on International Antitrust. This is an interesting essay that reviews some very interesting international antitrust books. Worth downloading!

ABSTRACT: While never completely dormant, international antitrust has gained a new momentum in the past two decades or so, evidenced by the intensity of the global exchange on international antitrust issues. This momentum is driven, inter alia, by the significant increases in international trade. It is also fueled by the exponential growth in the number and trading power of jurisdictions that have adopted antitrust laws, thereby increasing possible jurisdictional overlaps while providing a wider toolbox to deal with antitrust matters with a transborder dimension. Such developments strengthen the need to solve an existing paradox: while major businesses are often global, antitrust rules regulating their conduct are not.

Academic scholarship plays an important role in these developments, both mapping the challenges that lie ahead - based on past efforts and the current state of antitrust around the world - and suggesting ways to meet such challenges. This book review analyzes three recent significant contributions to this literature, while focusing on three related questions that this scholarship raises. First, what is international about antitrust? Second, what challenges are faced by international antitrust? Third, what are the prospects for future developments in international antitrust: do history and realism militate against a true international solution, or can such a solution evolve and, if so, under what conditions?

August 10, 2012 | Permalink | Comments (1) | TrackBack (0)

News on the Lack of Westlaw Access for Oxford University Press Journals

Posted by D. Daniel Sokol

After my last post wondering why OUP is no longer westlaw seachable, Oxford University Press reached out to me to confirm that they have pulled all of their journals from Westlaw and moved them exclusively to Lexis. From the standpoint of US law professors, where Westlaw is dominant, this presents a significant problem. Citation counts of faculty productivity are done through Westlaw. As a result, scholars and practitioners looking to have a larger impact will have fewer incentives to submit works to OUP journals as they will be punished for doing so with fewer citations. Moreover, the W&L journal impact factor counter of journals is also based on Westlaw. I am sure that Oxford has its own reasons for choosing Lexis exclusively ($$$). Given that most faculty push their students to use Westlaw and the journals use Westlaw, Oxford's decision seems ill advised. As this information of OUP's decision gets out generally to the US legal community, there will be negative repercussions for all of OUP's journals. It takes a long time to build a quality brand but only a short time to destroy it.

OUP law journals include:

The American Journal of Jurisprudence
American Law and Economics Review
Arbitration Law Reports and Review
The British Journal of Criminology
British Yearbook of International Law
Capital Markets Law Journal
The Chinese Journal of Comparative Law
Chinese Journal of International Law
Current Legal Problems
European Journal of International Law
Human Rights Law Review
ICSID Review - Foreign Investment Law Journal
Industrial Law Journal
International Data Privacy Law
International Journal of Constitutional Law
International Journal of Law and Information Technology
International Journal of Law, Policy and the Family
International Journal of Refugee Law
International Journal of Transitional Justice
Jerusalem Review of Legal Studies
Journal of Antitrust Enforcement
Journal of Church and State
Journal of Competition Law & Economics
Journal of Conflict and Security Law
Journal of Environmental Law
Journal of European Competition Law & Practice
Journal of Intellectual Property Law & Practice
Journal of International Criminal Justice
Journal of International Dispute Settlement
Journal of International Economic Law
The Journal of Law, Economics, and Organization
Journal of Legal Analysis
The Journal of World Energy Law & Business
Law, Probability and Risk
London Review of International Law
Medical Law Review
Oxford Journal of Legal Studies
Oxford Journal of Law and Religion
Policing: A Journal of Policy and Practice
Reports of Patent, Design and Trade Mark Cases
Statute Law Review
Trusts & Trustees
Yearbook of European Law
Yearbook of International Environmental Law

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

Reverse-Payment Settlements: Presumptively Bad or Usually Acceptable?

Posted by D. Daniel Sokol

C. Kyle Musgrove & Richard Ripley (Haynes and Boone) ask Reverse-Payment Settlements: Presumptively Bad or Usually Acceptable?

ABSTRACT: In April 2012, the Federal Trade Commission ("FTC") suffered yet another rebuke of what FTC Chair Jon Leibowitz has characterized as "one of the Commission's top competition priorities," i.e., stopping "reverse payment" settlements in drug patent litigation. The Eleventh Circuit's decision in the AndroGel case presents an opportunity to review the concept of reverse payment settlements, the agency's persistent condemnation of these agreements, the courts' near-unanimous endorsement of the concept, and assess which side holds the better hand.

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

Thursday, August 9, 2012

Beaton-Wells on The Economics of Collusion: Cartels and Bidding Rings

Posted by Caron Beaton-Wells

I am very grateful to Danny Sokol, the Blog editor, for inviting me to review The Economics of Collusion: Cartels and Bidding Rings, for the purposes of this mini-symposium. This is the second only book ever that I have read cover to cover, barely putting it down (the first being John Grisham’s best seller, The Firm…).

I found this book gripping. In true Grishamesque-style (I hope the authors will forgive the comparison), Part I of the book takes the form of an innovative narrative through which Marshall and Marx tell the ‘story’ of how cartels and bidding rings work in practice. The narrative of a cartel is undertaken in the voice of the executive representing the largest firm in an industry of four firms, at a meeting at which the executive advocates the initiation of a cartel and explains how it should work. The narrative of a bidding ring is undertaken in the voice of an experienced antiques dealer, a long-standing member of a ring, who is providing a tutorial for an employee in the fundamental principles and mechanics of the ring. As is evident from the sources cited in the footnotes, the narratives are based on the formal record of actual cases, but they are also enriched by the ‘inside’ insights that the authors have gained through their extensive experience as experts and advisers in such cases, as well as informed by scholarly work – including their own in the area of auction theory.

Part II of the book is dedicated to explaining the economics of cartels and bidding rings. It builds on and develops the concepts and themes introduced in the narratives in Part I. It does this in a clearly structured systematic way, drawing on simple but powerful frameworks. In the cartel chapters, for example, the authors present an extended version of Michael Porter’s Five Forces framework to explain how the suppression of rivalry by a cartel works and how it is affected by buyer (or supplier) resistance. They then draw on Stigler’s framework of collusive structures to explain how collusion is implemented through pricing structures, allocation structures and enforcement structures. Part III builds on Part II, drawing on the economic analysis to identify and explain how collusion may be detected and proven through economic evidence (using the ‘plus factor’ terminology most familiar to US scholars and practitioners in this field). In the final chapter in this Part and the book the authors make the useful link between cartel analysis and merger analysis, offering an approach to the prediction of future collusion following a merger (generally referred to as ‘coordinated effects’).

There are several features of Parts II and III that are noteworthy. First, consistent with the approach taken in Part I, Marshall and Marx have a simple explanatory style and use accessible (at times, quite informal – eg, description of a cartel’s strategy in relation to non-cartel firms as ‘killing them off’) language. This makes the economic material covered in these Parts not only readily comprehensible to, but positively engaging of, those without any economic training or background. And where there is mathematical content, it is asterisked so as to provide fair warning… Secondly, the authors use a range of expositional devices to assist readers in absorbing and retaining the information presented. These include regular review and summary of key points covered previously so as to make clear the connections between the different sections and Parts of the book. The authors also provide lists, by way of introduction and/or conclusion to chapters, and in that way usefully reinforce main points that will be or have been covered (eg, a list of measures that an auctioneer might take to deter collusion; a list of types of government intervention that assist cartel firms). Thirdly, the text is accompanied by detailed footnotes that provide readers with references to the seminal theoretical and empirical economic literature on the points in question. Together with the useful index of authors and an extensive list of references at the end of the book, this effort will be much appreciated by readers – scholars, in particular. Finally, the authors use appendices at the end of chapters to provide examples that further expound on and illustrate the material covered in the chapter (eg in chapter 7 concerning forces beyond suppression of inter-firm rivalry, examples of US laws that provide support for cartel activity – relating to export trade associations and federal marketing orders; in chapter 8 concerning suppression of interbidder rivalry by rings, numerical examples of leakage, membership and participation at a sealed bid auction).

As should be evident from the foregoing, both the content and style of this book guarantee it a wide audience. The authors have been successful in the challenge that they set for themselves, namely to make the book accessible to advanced undergraduates (in law and in economics), as well as for antitrust lawyers and applied economists. The content will also be of immense practical value to businesses anxious to resist collusion by their customers or suppliers or to detect collusion in their workforce and/or subsidiaries. For obvious reasons, it should be compulsory reading too for enforcement agencies. Unavoidably, but perhaps ironically, the book would also make productive reading for any business person contemplating the initiation of or attempting to sustain a cartel or bidding ring… The latter point though does highlight a particular limitation of the book.

With its focus on the economics of collusive behaviour, the book does not delve into, or even mention, the non-economic (including non-rational) variables that play a part in explaining this type of conduct. There is no reference made to the vast informative literature from other behavioural and social science disciplines such as psychology and criminology that assists in understanding the full range of motivations for criminogenic activity (particular in this context, ‘white collar’ criminal activity) by individuals and organisations. I hasten to say that this is not intended as a criticism of the book which, as its title makes plain, does not purport to be anything other than singular in its disciplinary focus. However, it should serve as a caution to those keen to understand collusion in its full complexity and richness that there are other disciplinary sources that should be consulted alongside a valuable economic source such as this one.

The authors disclose in the Preface their ‘fascination with collusive conduct’, going on to say that ‘[e]ach of us would rather read European Commission decisions for cartel cases than best-selling non-fiction literature’ (perhaps they are yet to try Grisham…?). This passion for the subject of collusion has produced a book that will endure in its relevance and value to all in the antitrust community. We should be grateful to Marshall and Marx for sharing their passion.

August 9, 2012 | Permalink | Comments (3) | TrackBack (0)

Blog Symposium on The Economics of Collusion: Cartels and Bidding Rings

Posted by D. Daniel Sokol

I am pleased to announce a blog symposium on what is in my mind the best cartel book of the year, The Economics of Collusion: Cartels and Bidding Rings by Robert C. Marshall (Penn State) and Leslie M. Marx (Duke). Providing thoughtful commentary will be three academics from the world of economics and law: Susan Athey (Harvard - Economics), Caron Beaton-Wells (Melbourne - Law) and Bill Kovacic (George Washington - Law).

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

Multi-stage Market Power in the Italian Fresh Meat Industry

Posted by D. Daniel Sokol

Daniele Moroa, Paolo Sckokaia and Mario Veneziani (all Universita Cattolica del Sacro Cuore) discuss Multi-stage Market Power in the Italian Fresh Meat Industry.

ABSTRACT: In line with the New Empirical Industrial Organisation literature, a three-stage modelling of the fresh meat industry in Italy is developed to evaluate the extent of the oligopsonistic behaviour of downstream operators on upstream ones. Moreover, retailers are allowed to exercise oligopolistic market power over consumers purchasing three types of meats assumed substitutable in consumption. Employing a flexible technique for estimating such a model on a uniquely compiled database, evidence that market power is mainly exercised at the retail is unveiled. In fact, roughly 75 – 85% of the price margin at the retail level can be associated with the occurrence of oligopolistic market power. Empirical findings do not support the existence of oligopsonistic power of retailers over processors and of the latter over farmers.

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

Price Discrimination with Asymmetric Firms: The Case of the U.S. Carbonated Soft Drinks Market

Posted by D. Daniel Sokol

Yizao Liu, University of Connecticut and Shu Shen University of California, Davis explore Price Discrimination with Asymmetric Firms: The Case of the U.S. Carbonated Soft Drinks Market.

ABSTRACT: This paper investigates the relationship between price discrimination and vertical product differentiation, using National Brands and Private Labels in the Carbonated Soft Drink market as a case study. We decompose prices difference into quantity dis- count and cost difference across packagings and recover marginal cost by a structural demand model of consumer preference and firm behavior. Our results suggest that in the carbonated soft drinks market, both national brands and private labels offers quantity discount to consumers: consumers pay lower unit prices when buying larger packed soft drinks. In addition, the price curvature parameter is lower for private la- bels, implying that the price schedule is more curved for private label soft drinks than national brands. This means in the CSD market, private labels have more ability to perform price discrimination, segment consumers, and generate high revenues, com- paring! to national brands. This result, to some extent, explains the growing market shares of private label soft drinks and the significant percentage of total sales from private labels goods for retailers, such as Wal-Mart and Target.

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

Market Structure and Market Performance in E-Commerce

Posted by D. Daniel Sokol

Franz Hackl, Michael E Kummer, Rudolf Winter-Ebmer, and Christine Zulehner analyze Market Structure and Market Performance in E-Commerce.

ABSTRACT: We investigate the causal effect of market structure on market performance in the consumer electronics. 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 over the whole product lifecycle. Using this information for 70 digital cameras, we generate instrumental variables for the number of firms in the market based on the shops' entry decisions on other product markets in the past. We find that instrumenting is particularly important for estimating the effect of competition on the markup of the price leader.

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

Solving the Patent Settlement Puzzle

Posted by D. Daniel Sokol

Einer Elhauge, Harvard Law School and Alex Krueger are Solving the Patent Settlement Puzzle.

ABSTRACT: Courts and commentators are sharply divided about how to assess reverse payment patent settlements under antitrust law. The essential problem is that a PTO-issued patent provides only a probabilistic indication that courts would hold the patent is actually valid and infringed, and parties have incentives to structure reverse payment settlements to delay entry more than this patent probability would merit. Some favor comparing the settlement entry date to the probabilistic scope of the patent, but this requires difficult case-by-case assessments of the patent probabilities. Others instead favor a formal scope of patent test that allows such settlements for non-sham patents if the settlement does not delay entry beyond the patent term, preclude non-infringing products, or delay non-settling entrants. However, the formal scope of patent test delays entry more than merited by the patent strength, and it provides no solution when there is a significant dispute about infringement or a bottleneck issue delaying other entrants.

This paper provides a way out of this dilemma. It proves that when the reverse payment amount exceeds the patentholder’s anticipated litigation costs, then under standard conditions the settlement entry date will always delay expected entry, harm consumer welfare, and exceed the probabilistic patent scope according to the patentholder’s own probability estimate. Further, whenever a reverse payment is necessary for settlement, it will also have the same anticompetitive effects according to the entrant’s probability estimate. This proof thus provides an easily administrable way to determine when a reverse payment settlement is necessarily anticompetitive, without requiring any inquiry into the patent merits. We also show that, contrary to widespread assumption, patent settlements without any reverse payment usually (but not always) delay entry and exceed the probabilistic patent scope, and suggest a procedural solution to resolve such cases. ABSTRACT:

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

Regulated Prices, Rent-Seeking, and Consumer Surplus

Posted by D. Daniel Sokol

Jeremy Bulow (Graduate School of Business, Stanford University, USA) and Paul Klemperer (Nuffield College, Oxford University) discuss Regulated Prices, Rent-Seeking, and Consumer Surplus.

ABSTRACT: Price controls lead to misallocation of goods and encourage rent-seeking. The misallocation effect alone ensures that a price control always reduces consumer surplus in an otherwise-competitive market with convex demand if supply is more elastic than demand; or with log-convex demand (e.g., constantelasticity) even if supply is inelastic. The same results apply whether rationed goods are allocated by costless lottery, or whether costly rent-seeking and/or partial decontrol mitigates the inefficiency. Our analysis exploits the observation that in any market, consumer surplus equals the area between the demand curve and the industry marginal revenue curve.

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

Wednesday, August 8, 2012

OUP journals (including Journal of Competition Law and Economics) are no longer in the westlaw JLR database

Posted by D. Daniel Sokol

I was looking for a Journal of Competition Law and Economics article and could not seem to find it in the JLR westlaw database. I have discovered that as of August 1, Westlaw no longer has the journal in its JLR database. Other OUP journals seem to be missing too. This is not good as there have been a number of very good JCLE articles over the years.

August 8, 2012 | Permalink | Comments (0) | TrackBack (0)

Does merger simulation Work? A "natural experiment" in the Swedish analgesics market

Posted by D. Daniel Sokol

Jonas Bjornerstedt (Swedish Competition Authority) and Frank Verboven (Leuven) ask Does merger simulation Work? A “natural experiment” in the Swedish analgesics market.

ABSTRACT: We exploit a natural experiment associated with a large merger in the Swedish market for analgesics (painkillers). We confront the predictions from a merger simulation study, as conducted during the investigation, with the actual merger effects over a two-year comparison window. The merger simulation model is based on a constant expenditures specification for the nested logit model (as an alternative to the typical unit demand specification). The model predicts a large price increase of 34 percent by the merging firms, because there is strong market segmentation and the merging firms are the only competitors in the largest segment. The actual price increase after the merger is of a similar order of magnitude: +42 percent in absolute terms and +35 percent relative to the “control group” of non-merging rivals. These findings suggest strong support for merger simulation and structural models of competition more generally. But a closer look at a wider range of merger predictions leads to more nuanced conclusions. First, both merging firms raised their prices by a similar percentage, while the simulation model predicted a larger price increase for the smaller firm. Second, the merging firms’ market shares dropped (as predicted), but one of the outsider firms’ market share also dropped (because it raised prices by a larger amount than predicted).

August 8, 2012 | Permalink | Comments (0) | TrackBack (0)

Using Difference-in-Differences to Estimate Damages in Healthcare Antitrust: A Case Study of Marshfield Clinic

Posted by D. Daniel Sokol

R. Forrest McCluer Greylock McKinnon Associates and Martha A. Starr, American University are Using Difference-in-Differences to Estimate Damages in Healthcare Antitrust: A Case Study of Marshfield Clinic.

ABSTRACT: In calculating damages in healthcare antitrust cases, the difference-in-difference (DID) approach provides a potentially valuable means of controlling for lawful factors that influence prices, such as case-mix and quality of care, as distinct from price differentials due to unlawful behavior. After first comparing DID to traditional methods of estimating damages, this paper uses DID to analyze data from a well-known case against Marshfield Clinic, a large multispecialty group practice that was found to have illegally allocated markets for physician services in Central Wisconsin. Using a specification similar to what was used in the case, we find that illegal behavior accounted for about two-fifths of the Clinic's extra increase in costs per patient during the damage period. The courts, however, were not persuaded that the analysis adequately controlled for legal factors. We discuss potential pitfalls in using DID to estimate damages suggested by the case, as well as possible ways around them.

August 8, 2012 | Permalink | Comments (0) | TrackBack (0)

Super Antitrust Adjunct (4 antitrust classes a year) Steve Cernak to leave in-house job at GM for law firm

Posted by D. Daniel Sokol

Steve Cernak is a smart guy. He also teaches more antitrust classes a year than any full time faculty member at any US school and indeed teaches at three law schools. Steve teaches basic antitrust at Wayne State and Cooley and "Counseling and Advocacy in Antitrust" and "In House Counsel" at Michigan. Steve has given me permission to announce that he is transitioning from GM (August 15th is his last day) to law firm life at Schiff Hardin (starting August 16). With a forthcoming antitrust book and now law firm billing, Steve may be the antitrust version of James Brown (hardest working man in show business). Good luck Steve.

August 8, 2012 | Permalink | Comments (0) | TrackBack (0)

Screening for Collusion: A Spatial Statistics Approach

Posted by D. Daniel Sokol

Pim Heijnen, University of Groningen, Marco A. Haan, University of Groningen, Adriaan R. Soetevent, University of Amsterdam - Amsterdam School of Economics, Tinbergen Institute describe Screening for Collusion: A Spatial Statistics Approach.

ABSTRACT: We develop a method to screen for local cartels. We first test whether there is statistical evidence of clustering of outlets that score high on some characteristic that is consistent with collusive behavior. If so, we determine in a second step the most suspicious regions where further antitrust investigation would be warranted. We apply our method to build a variance screen for the Dutch gasoline market.

August 8, 2012 | Permalink | Comments (0) | TrackBack (0)

On the Welfare Effects of Exclusive Distribution Arrangements

Posted by D. Daniel Sokol

Jurgen Eichberger, University of Heidelberg - Alfred Weber Institute for Economics and Frank Mueller‐Langer, Max Planck Institute for Intellectual Property and Competition Law offer thoughts On the Welfare Effects of Exclusive Distribution Arrangements.

ABSTRACT: The regulation of vertical relationships between firms is the subject of persistent legal and academic controversy. The literature studying vertical trade relationships seems to assume that an upstream monopolist prefers downstream competition over exclusive distribution arrangements. We derive precise conditions for when an upstream monopolist prefers competing distribution systems over exclusive distribution in the downstream market. We also show that the welfare effects of downstream competition are ambiguous. A downstream oligopoly may have negative welfare properties compared to a downstream monopoly.

August 8, 2012 | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 7, 2012

From the Prairie to the Ocean: More Developments in State RPM Law

Posted by D. Daniel Sokol

Michael Lindsay (Dorsey) notes From the Prairie to the Ocean: More Developments in State RPM Law.

ABSTRACT: Michael Lindsay provides an update on post-Leegin resale price
maintenance decisions, focusing on recent decisions in New York and Kansas state
courts.  He also updates his chart summarizing RPM law for each state.

August 7, 2012 | Permalink | Comments (0) | TrackBack (0)

EU Competition Law An Analytical Guide to the Leading Cases (Third Edition)

Posted by D. Daniel Sokol

Out soon (order your copies now) is Ariel Ezrachi's (Oxford) EU Competition Law Third Edition An Analytical Guide to the Leading Cases.

ABSTRACT: This book is designed as a working tool for the study and practice of European Competition Law. It is an enlarged and updated third edition of the highly practical guide to the leading cases of European Competition Law. This third edition focuses primarily on Article 101 TFEU (Ex Article 81 EC), Article 102 TFEU (Ex Article 82 EC) and the European Merger Regulation. In addition it explores the public and private enforcement of Competition Law, the intersection between Intellectual Property Rights and Competition Law and the application of Competition Law to State action. Each chapter begins with an introduction which outlines the relevant laws, regulations and guidelines for each of the topics, setting the analytical foundations for the case entries. Within this framework, cases are reviewed in summary form, accompanied by analysis and commentary.

August 7, 2012 | Permalink | Comments (1) | TrackBack (0)