Antitrust & Competition Policy Blog

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

Saturday, September 15, 2012

Why the 'Scope of the Patent' Test Cannot Solve the Drug Patent Settlement Problem

Posted by D. Daniel Sokol

Michael A. Carrier, Rutgers University School of Law - Camden explains Why the 'Scope of the Patent' Test Cannot Solve the Drug Patent Settlement Problem.

Abstract: One of the most difficult legal issues today involves settlements by which brand-name drug companies pay generic firms to delay entering the market. Such conduct requires courts to consider not only patent and antitrust law, but also the Hatch-Waxman Act, the complex regime governing behavior in the pharmaceutical industry.

Courts have analyzed these agreements by relying on a test that asks if the settlement falls within the “scope of the patent.” They have found, in nearly all of these cases, that it does. And, as a result, they have concluded that the agreements do not violate the antitrust laws.

This 8-page article shows why the scope test is not appropriate in determining the antitrust treatment of drug patent settlements. It recounts the history of the test, showing its increasing deference over time. And it demonstrates the three primary problems with the test: (1) it involves a transformation that has left the test toothless, (2) it assumes that the patent at issue is valid, and (3) it neglects the issue of infringement.

September 15, 2012 | Permalink | Comments (0) | TrackBack (0)

Friday, September 14, 2012

Exercise of Standard-Related Patents and Application of Korean Competition Law -- With a Focus on Critical Review on the IPR Guidelines

Posted by D. Daniel Sokol

Dae Sik Hong, Sogang University and Namhoon Kwon, Konkuk University have written on the Exercise of Standard-Related Patents and Application of Korean Competition Law -- With a Focus on Critical Review on the IPR Guidelines.

ABSTRACT: The purpose and main scope of this paper is to focus on the types of specific conducts with potential issues, the standards for them, and the applicable factors to be considered that were provided with respect to the exercise of patent rights in relation to technical standards in the Guidelines on the Abuse of Intellectual Property Right (“IPR Guidelines”) amended by the Korea Fair Trade Commission on March 2010, critically review the methods to identify the types of such conducts and relevance of such proposed standards, and propose alternatives thereto. As related problems, this research also reviews problems with the general principles of examination relating especially to the subjective requirements, conduct beyond scope of legitimate exercise of patent rights and limitations on the Monopoly Regulation and Fair Trade Act(“MRFTA”)'s intervention, and judicial remedy under the civil law with unreasonable exercise of standard-related patents.

September 14, 2012 | Permalink | Comments (0) | TrackBack (0)

Natural Monopoly and Distorted Competition: Evidence from Unbundling Fiber-Optic Networks

Posted by D. Daniel Sokol

Naoaki Minamihashi, Bank of Canada explores Natural Monopoly and Distorted Competition: Evidence from Unbundling Fiber-Optic Networks.

ABSTRACT: Can regulation solve problems arising from a natural monopoly? This paper analyzes whether "unbundling," referring to regulations that enforce sharing of natural monopolistic infrastructure, prevents entrants from building new infrastructure. It models and estimates a dynamic entry game to evaluate the effects of regulation, using a dataset for construction of fiber-optic networks in Japan. The counterfactual exercise shows that forced unbundling regulation leads to a 24% decrease in the incidence of new infrastructure builders. This suggests, therefore, that when a new technology is being diffused, regulation to remove a natural monopoly conversely involves risks that incumbent monopolists' shares will increase.

September 14, 2012 | Permalink | Comments (0) | TrackBack (0)

Rosh Hashana video - 2012 Antitrust Edition

Posted by D. Daniel Sokol

Last year I had my kids pick their favorite music videos on youtube by Jewish holidays. 

Rosh Hashana





There is a new video for Rosh Hashana. Enjoy. HT: David Balto.


September 14, 2012 | Permalink | Comments (0) | TrackBack (0)

International Cooperation at the Antitrust Division

Posted by D. Daniel Sokol

Joe Wayland (DOJ) offers thoughts on International Cooperation at the Antitrust Division for the International Bar Association's 16th Annual Competition Conference, delivered by Joseph F. Wayland in Florence, Italy on September 14, 2012.

September 14, 2012 | Permalink | Comments (0) | TrackBack (0)

The Extraordinary Deterrence of Private Antitrust Enforcement: A Reply to Werden, Hammond, and Barnett

Posted by D. Daniel Sokol

Robert H. Lande, University of Baltimore - School of Law and Joshua P. Davis, University of San Francisco - School of Law advocate The Extraordinary Deterrence of Private Antitrust Enforcement: A Reply to Werden, Hammond, and Barnett.

ABSTRACT: Our article, "Comparative Deterrence from Private Enforcement and Criminal Enforcement of the U.S. Antitrust Laws," 2011 B.Y.U. L. Rev. 315, documented an extraordinary but usually overlooked fact: private antitrust enforcement deters a significant amount of anticompetitive conduct. Indeed, the article showed that private enforcement "probably" deters even more anticompetitive conduct than the almost universally admired anti-cartel enforcement program of the United States Department of Justice.

In a recent issue of Antitrust Bulletin, Gregory J. Werden, Scott D. Hammond, and Belinda A. Barnett challenged our analysis. They asserted that our comparison “is more misleading than informative.” It is unsurprising that they would question our position, given its heretical nature (not to mention their understandable loyalty to the fine institution that employs them). However, their specific criticisms do not withstand scrutiny. In their Antitrust Bulletin article they offered six separate critiques of our analysis, each of which this response considers and rebuts in turn.

Although our original article considered a large number of factors and requires 71 law review pages, the core of the comparison it undertook is relatively straightforward: The article added together the value of every DOJ anti-cartel sanction from 1990 to 2007, including fines, restitution, and an equivalent value for time spent in detention. This totaled $7.737 billion. The article compared this amount to the $21.9 to 23.9 billion in sanctions resulting from just 40 large private antitrust cases that ended during the same period. On the basis of this and other evidence the article concluded, with appropriate qualifiers, that private enforcement "probably" deters more anticompetitive activity than DOJ anti-cartel enforcement. The article also noted that private enforcement deserves much more praise than it typically receives, not the scorn so frequently given to it by the antitrust field. In this response, we explain why our original conclusions survive the efforts of Werden, Hammond, and Barnett to debunk them.

September 14, 2012 | Permalink | Comments (0) | TrackBack (0)

Thursday, September 13, 2012

Refusals to Deal, Essentials Facilities, and Price Squeezes

Posted by D. Daniel Sokol

Barak Orbach, University of Arizona and Raphael Avraham, University of Arizona - James E. Rogers College of Law discuss Refusals to Deal, Essentials Facilities, and Price Squeezes.

ABSTRACT: Antitrust refusal to deal, essential facility, and price squeeze claims, and the doctrines that accommodate such claims are analytically peculiar. First, the claims seek to establish duties to deal — mandates — even with competitors, while antitrust is designed to restrict anticompetitive collaborations, not to enforce cooperation. Second, the claims are strongly associated with fairness perceptions and at least implicitly stress competitive unfairness, whereas their primary justification is market efficiency. Third, both fairness and efficiency may be desirable goals for public policies, but antitrust laws do not offer a regulatory framework to advance such goals through duties to deal. Forth, the claims and judicial rules that accommodate them have the intuitive appeal of rules of thumb, but they are too simplistic to address many common economic settings. This Chapter offers a general framework for the analysis of refusal to deal, essential facility, and price squeeze claims, or more broadly, alleged antitrust duties to deal.

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

Adverse Effects of Patent Pooling on Product Development and Commercialization

Posted by D. Daniel Sokol

Thomas D. Jeitschko (Michigan State) and Nanyun Zhang (Townsend) analyze Adverse Effects of Patent Pooling on Product Development and Commercialization.

Abstract: The conventional antitrust wisdom is that the formation of patent pools is welfare en- hancing when patents are complementary, since the pool avoids a double-marginalization problem associated with independent licensing. The focus of this paper is on (down- stream) product development and commercialization on the basis of perfectly comple- mentary patents. We consider development technologies that entail spillovers between rivals, and assume that nal demand products are imperfect substitutes. When pool formation facilitates information sharing and either increases spillovers in development or decreases the degree of product di erentiation, patent pools can adversely a ect welfare by reducing the incentives towards product development and product mar- ket competition|even with perfectly complementary patents. This modi es and even negates the conventional wisdom for some settings and suggests why patent pools are uncommon in science-based industries such as biotech and pharmaceuticals, despite there being frequent policy advocacy for them.

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

Robust Exclusion Through Loyalty Discounts With Buyer Commitment

Posted by D. Daniel Sokol

Einer Elhauge, Harvard Law School and Abraham L. Wickelgren, University of Texas at Austin - School of Law discuss Robust Exclusion Through Loyalty Discounts With Buyer Commitment.

ABSTRACT: We show that loyalty discounts with buyer commitments create anticompetitive effects beyond those possible with pure exclusive dealing. The loyalty discount adds a seller commitment to maintain a distinction between the loyal and disloyal price. This seller commitment reduces the seller's incentives to compete for free buyers because the loyalty discount means that lowering prices to free buyers requires lowering prices to committed buyers. This softened seller competition reduces the rival's incentive to lower its own prices to free buyers. The result is inflated prices to free buyers, which in turn inflates prices to committed buyers because they are priced at a loyalty discount from those free buyer prices. Because each buyer who signs a loyalty discount contract thus softens competition and raises prices for all buyers, the result is to create an externality among buyers even without economies of scale or downstream competition. If enough buyers exist and the entrant's cost advantage is not too large, we prove that this externality means that: (1) in any equilibrium, enough buyers sign loyalty discount contracts to anticompetitively increase prices; and (2) there always exists a possible equilibrium in which all buyers sign, completely foreclosing a more efficient rival. As a result, the incumbent can use loyalty discounts to increase its profit and decrease both buyer and total welfare.

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

Defining Relevant Market Under the European Union Competition Law - Regulations and Practice - Experience for Vietnam

Posted by D. Daniel Sokol

Thanh Nguyen, International Law Faculty, Diplomatic Academy of Vietnam explores Defining Relevant Market Under the European Union Competition Law - Regulations and Practice - Experience for Vietnam.

ABSTRACT: Competition law is the foundation of the market economy, however markets will not play its role effectively and consumer welfare will be reduced if abuse of market power occurs. In order to prevent abuses of market power arising from anti-competitive agreements, we first have to define the relevant market in which it happens. Assessing market power requires every Competition Authority to define the relevant market, thus, market definition has been at the center of any analysis of merger control or an important tool to identify the boundaries of competition between firms. In other words, the definition of relevant market lies at the core of competition law and antitrust regulation. In general, the more narrowly the market is defined, the more likely firms will be found to have market power. Because of its importance, it is necessary for every law system to provide the details regarding how to define relevant market, what factors should be taken into account and which kinds of tests can be used. Until now, most of countries have promugated guidelines on market definition, i.e the Commission Notice on the Definition of Relevant Market for the Purposes of Community Competition Law issued by European Commission in 1997, Horizontal Merger Guidelines issued by US Department of Justice and the Federal Trade Commission in 1992 and 1997, Merger Guidelines issued by Australian Competition and Consumer Commission, Singapore, China and Indian’s guidelines on market definiton, etc. Besides the Guidelines, case law also is of great important source to define relevant market. Being aware of the importance of competition law in general and market definition in specific, Vietnam also promulgated Competition Law in 2004 and Decree No.116/2005/ND-CP dated 15 September 2005 to provide detailed regulations on determining market definition. However, due to its short history, Vietnam Competition Authority has solved few cases concerning market definition until now. It is easy to understand that fact because defining relevant market is very complicated work and it needs lots of time to develop. Thus, it is difficult for a newly-established authority to deal with market definition cases. In my opinion, it is easier for the Vietnam Competition Authority as well as enterprises if they study the experience of other competition authorities in defining market definition through case law. In this way both can learn from the mistakes as well as the successes of the competition regimes. It is clear that by researching case law, we can understand deeply the way the Competition Commission define a relevant market, and what factors are to be chosen for consideration in market definition. In this thesis, I choose European Competition Law and its case law to study and analyze the concept of definition of a relevant market, to brief the methods used to define such market and their practical applicability. In every factor used to define relevant market, I will use case laws to illustrate the European Commission’s approach. I choose European Law on Competition to illustrate the way to define relevant market is because it is the most successful and comprehensive approach and, more importantly, be easier for other competition authorities, including Vietnam to follow effectively.

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

Wednesday, September 12, 2012

Towards a Competition Culture—Advocacy and Outreach in the South African Competition Regime

Posted by D. Daniel Sokol

Trudi Makhaya (Competition Commission South Africa) has published Towards a Competition Culture—Advocacy and Outreach in the South African Competition Regime.

ABSTRACT: When South Africa's modern competition regime came into effect, the country did not have much of a competition culture to speak of. The economy was lumbering under the legacy of highly concentrated markets, international isolation, and the exclusion of the majority of the population from meaningful participation. The passage of the Competition Act and the launch of new competition authorities in 1999 marked a departure from this history.

Though there had been a competition law on the statute books before 1998, legal and business professionals, as well as public officials, had not been trained and groomed in an environment that placed high value on merit-based competition. The public at large also did not think of competition matters in dealings with business. In this context, advocacy and outreach initiatives have played an important role in the development of a competition culture. This is on-going work but much has already been achieved in a short space of time, with the work of the competition authorities taking on the 'flavour of a social movement' as described by former Competition Tribunal Chairman David Lewis.

Advocacy is recognized as an important function of the competition authorities in South Africa. According to the Competition Act, the Competition Commission is responsible for raising public awareness of competition law, collaborating with other regulators on competition-related matters to ensure the consistent application of the act, reviewing public regulations and legislation, and alerting the executive of any anti-competitive provisions contained therein. The Competition Commission may also report to the relevant government minister on any matter relating to the application of the Competition Act and to enquire into and report to the minister on any matter concerning the purposes of the Act. However, the execution of these responsibilities is not backed by powers to compel information and to summon witnesses. Thus the co-operation of other entities with the Commission in its advocacy is mostly voluntary.

The Competition Commission's organizational strategy incorporates advocacy as one of its three over-arching goals. A dedicated division, Advocacy and Stakeholder Relations, leads and co-ordinates the Commission's outreach activities. This division promotes voluntary compliance with the Competition Act, develops and maintains relationships with international and domestic stakeholders in the public and private spheres, and communicates the decisions and activities of the Commission. Though advocacy is housed in a specialist division, all of the Commission's work is imbued with advocacy and all staff members play an advocacy role as it relates to their enforcement duties.

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


Posted by D. Daniel Sokol


ABSTRACT: Firms do not only compete by price. Another parameter of competition is innovation. This raises the question of how competition law should assess potential restraints of competition in innovation. Modern competition policy advocates an effects-based approach that analyzes cases in light of the economic effects on relevant markets. Firms also compete in existing markets when they try to improve their products sold in these markets or optimize processes for manufacturing those products. However, as it was first discussed in merger control law, an analysis limited to the effects on existing markets may fail to assess cases appropriately when firms are not yet competitors but dispose of innovation capacity for future markets. Whereas a merger among such firms will not harm existing price competition, it may well have a negative effect on the new firm's incentives to innovate. For addressing this phenomenon, the U.S. agencies in particular started to analyze cases also in the light of so-called “innovation markets” in the 1990s. Yet this new approach was also criticized. Indeed, the idea of an innovation market remained at best a metaphor, since there are no transactions between suppliers and customers of innovation before tradable technologies and products emerge from R&D efforts. Therefore, both the most recent U.S. Horizontal Merger Guidelines and the EU Guidelines on Horizontal Cooperation Agreements have now given up the idea of an “innovation market” concept in favor of a U.S. “innovation competition” and EU “competition in innovation” concept. This change confirms that competition in innovation takes place outside and before the emergence of markets. If this is so, modern competition law, which strongly focuses on market analysis, may face a major problem in addressing restraints of competition in innovation appropriately. The following article analyzes this problem against the background of EU competition law for the different fields of enforcement—mergers, agreements, and unilateral conduct—by also taking into account most recent cases. The article highlights that an analysis based on the effects on existing markets can only work as a rough proxy in such cases. Most importantly, in the field of unilateral conduct, the requirement of market dominance at the time of the abuse under Article 102 of the TFEU considerably limits the capability of enforcers to act against restraints of competition in innovation.

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


Posted by D. Daniel Sokol


ABSTRACT: Antitrust originated in popular resistance to 17th century Royal Grants and 19th century economic power. This article contends that much of the guiding force of today's antitrust policy stems from these early sentiments, applied to thoroughly different legal and economic circumstances. Specifically, “monopolists” constrained by antitrust law are very different today from their historical counterparts, sharing a name but little else. Modern antitrust, with its focus on price-theoretic micro-models, treats all bearers of market power alike—despite markets being narrowly defined and economic and political effects differing greatly among them. Antitrust, as practiced today, infringes upon rights to property and freedom of contract and “gets away with it” simply by defining those constrained as “monopolists.” The implicit assumptions that this article challenges are that monopolists as such deserve no protection and that by mere virtue of their monopolistic status can be constrained whenever it is in society's (or consumers') interest to do so. I examine the rights monopolists might justifiably claim, as well as counter-arguments to such claims, within the framework of Rawls' theory of justice and his “veil of ignorance” thought experiment. These allow for going beyond current biases to examine what a just society would demand of its economic actors, and when justice demands protection of those limited by today's antitrust policy.

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

SAA II: Abuse of Dominance in the South African Skies

Posted by D. Daniel Sokol

Giulio Federico, Chief Economist Team, DG Competition, European Commission, IESE Business School of the University of Navarra analyzes SAA II: Abuse of Dominance in the South African Skies.

ABSTRACT: This article reviews a recent abuse of dominance decision against the incumbent domestic airline in South Africa (SAA). This case placed significant emphasis on the economic impact of the abusive conduct, and it represents a clear example of the adoption of an effects-based approach to assess exclusionary behavior by a dominant firm. As this paper sets out, given the features of SAA’s conduct and of the relevant market context, it is also possible to identify a coherent economic framework which can explain why SAA’s rivals could not profitably match its incentive schemes and were therefore foreclosed. The conceptual issues raised by the SAA case are similar to the ones at stake in the landmark judgments on British Airways. The lessons from this case are therefore relevant to ongoing antitrust debate on loyalty discounts.

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

Conference - EU COMPETITION LAW AND FINANCIAL MARKETS Thursday 22 November 2012

Posted by D. Daniel Sokol




The Brussels School of Competition (BSC) and the Liege Competition and Innovation Institute (LCII) are pleased to invite you to their joint conference on 22 November 2012.

This event is devoted to Competition Law and Financial Markets. Issues covered span the emerging role of competition law amidst large scale price fixing allegations in the financial industry, open and fair access to financial infrastructure, competition in credit rating services, the trade-off between competition enforcement and financial stability, the impact of prudential rules, etc.

To discuss those issues, we have invited a range of triple A experts, including EU Commission and ECB officials, industry representatives, lawyers as well as leading academics.

For more information, please contact Cécile de Grand Ry (Phone: +32 2 515 08 36 - @:


Philippe LAMBRECHT, Secretary General and Member of the Board, FEB

SESSION I.            
Chair, Charles GHEUR, Director, BSC

Irmfried SCHWIMANN, Head of Unit for Financial Services, DG COMP, EU Commission

David GABATHULER, Senior Associate, Allen & Overy

Miguel RATO, Partner, Shearman & Sterling

Nicholas LEVY, Partner, Cleary Gottlieb

Q&A Session

Coffee break

SESSION II.         
Chair, Axel GAUTIER, Professor of Economics, HEC-ULg

Eric DE KEULENEER, Professor, Solvay Brussels School of Economics, ULB
Gerben PAUWELS, Senior Legal Adviser, KBC Global Services
Nicolas PETIT, Professor, University of Liège (ULg) – Director, BSC and LCII
Maarten PIETER SCHINKEL, Professor, Amsterdam Center for Law & Economics, University of Amsterdam
Petra SENKOVIC, Assistant General Counsel, European Central Bank
Vincent VAN DESSEL, Chairman & CEO NYSE Euronext Brussels

Philippe-Emmanuel PARTSCH, Partner, Arendt & Medernach



Thursday 22 November 2012, from 14.00 to 18.30.
FEB, 4 rue Ravenstein, 1000 Brussels
Location: click here
Car Park: the Albertina/Square car park is accessible by the Rue des Sols.

- 190.00 €, excl. VAT (21 %)
for non-members
- 170.00 €, excl. VAT (21 %)
for members of a federation affiliated to the FEB
- 150.00 €, excl. VAT (21 %)
for academics and public officials

• REGISTRATION: click here


Cécile de Grand Ry
Phone: +32 2 515 08 97

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

Cartel Overcharges and the Deterrent Effect of EU Competition Law

Posted by D. Daniel Sokol

Florian Smuda, Centre for European Economic Research (ZEW), describes Cartel Overcharges and the Deterrent Effect of EU Competition Law.

ABSTRACT: This paper examines cartel overcharges for the European market. Using a sample of 191 overcharge estimates and several parametric and semi-parametric estimation procedures, the impact of different cartel characteristics and the market environment on the magnitude of overcharges is analyzed. The mean and median overcharge rates are found to be 20.70 percent and 18.37 percent of the selling price and the average cartel duration is 8.35 years. Certain cartel characteristics and the geographic region of cartel operation influence the level of overcharges considerably. Furthermore, empirical evidence suggests that the currently existing fine level of the EU Guidelines is too low to achieve optimal deterrence.

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

Tuesday, September 11, 2012

Price-Based Techniques for Market Definition & Buying Power Index

Posted by D. Daniel Sokol

Panagiotis N. Fotis, University of Central Greece - Department of Regional Economic Development, Hellenic Competition Commission offers Price-Based Techniques for Market Definition & Buying Power Index.

ABSTRACT: This paper focuses on a recent merger in Greek diary sector and empirically investigates the delineation of the market of production and distribution of white milk in Greece, the role of product asymmetries in market delineation along with evidences of unilateral effects of the merger and the existence of buying power of merged entity in the relevant product market for the procurement of raw milk. The empirical results indicate that the markets of production and distribution of fresh, High Pasteurization & Condensed milk in Greece are highly inelastic and constitute distinct relevant product markets. Large product asymmetries lead to broader relevant product markets, while evidences of unilateral effects are present for specific pairs of white milk products. Lastly, the merged entity may exercise its buying power after the clearness of the merger, even thought in the case where the market elasticity of supply and the own price elasticity of demand of the competitive fringe are highly inelastic.

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

NY Times reports - $1 Pizza Slice Is Back After a Sidewalk Showdown Ends Two Parlors’ Price War

Posted by D. Daniel Sokol

See the story here about the conclusion of the NY Pizza price war. The most important part is below:

All it took, it seems, was a brush with mutually assured destruction and one meeting of questionable legality.

“We make a compromise,” said Pravin Patel, who oversees Bombay Fast Food/6 Ave. Pizza, which sits a few feet south of 2 Bros. Pizza between West 37th Street and West 38th Street. “Both guys agreed. Both guys were losing money.”

And so slices returned to $1 about two weeks ago. Two slices and a soda now cost $2.75.

Scott Hemphill, are you reading this?

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

Josh Wright is the Right Person for the FTC Commissioner spot

Posted by D. Daniel Sokol

I was out yesterday giving a talk and traveling this morning so forgive me for my tardy response on Josh Wright's nomination to become an FTC Commissioner. What I like about Josh:

  1. He is a nice guy
  2. He knows antitrust
  3. His writing on vertical restraints is very good
  4. He is cautious about enforcement but is receptive to empirical work that challenges his assumptions
  5. Because he has worked at the FTC before in different capacities and is active as a consultant, he has a sense of the institutional environment of antitrust
  6. Josh has great skill in his ability to sell antitrust ideas at the "retail" level via his blog posts

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

OFT publishes report on price relationship agreements

Posted by D. Daniel Sokol

The Office of Fair Trading has today published a report prepared by Lear entitled Can ‘Fair’ Prices be Unfair which we thought might be of interest for your anti-trust and competition policy blog. The report explores the competition implications arising from a number of different types of price relationship agreements.
I have pasted a short press release below and the full report can be downloaded here:
10 September 2012
The Office of Fair Trading has today published a report which explores the competition implications arising from price relationship agreements such as 'price match' or 'lowest price' guarantees.
In a conventional competitive environment, sellers set their prices independently taking account of the prices charged by rivals. However, some sellers choose to adopt pricing policies or enter agreements that limit their freedom to price independently, and that link their prices to those charged by rivals for the same or similar competing products.
The report, prepared for the OFT by LEAR, examines the various forms these agreements can take, their potential benefits and anti-competitive effects, drawing on economic literature and relevant case law. The OFT will present the findings today at a joint workshop held by the US Federal Trade Commission and Department of Justice on the implications for antitrust policy and enforcement of ‘most-favoured nation’ (MFN) clauses, which are a type of price relationship agreement.
The report focuses on three types of agreement:
·         Across-Sellers Agreements – for example when a retailer promises its customers to match or beat a price the customer may find for the same, or a similar, product from other sellers.
·         Across-Customers Agreements - for example, when a manufacturer is contractually obliged to offer a retailer the best price it offers to any other retailer. These agreements are sometimes referred to as MFNs.
·         Third Party Agreements – these are price relationship agreements entered into by a manufacturer and a retailer (or a platform and a seller) that determine the price paid by the customer. For example, an agreement whereby the retailer undertakes to set the price at which it resells a manufacturer’s products with reference to the price at which it sells the products of a competing manufacturer. Another example that is particularly prevalent in the online sector is an agreement that requires the seller to sell a good or service on an online platform at a price that is not higher than the price the seller charges on other platforms.
The report suggests that while some types of price relationship agreements could be attractive to buyers, they could also have a softening effect on competition. For example, shoppers offered a 'lowest price' guarantee may not bother to shop around as much as they would otherwise, thus reducing the downward pressure on prices. Furthermore, if a rival of a 'lowest price' retailer knows that any price reduction will quickly be matched or beaten, the incentive to lower prices may be reduced.
The report also found that certain agreements could discourage or prevent new entrants from gaining a foothold in the market. For example, the existence of parity agreements between online platforms could prevent new platforms from attracting buyers by charging lower prices.
Amelia Fletcher, OFT Chief Economist said:
'This report provides an excellent reference on the competition implications of various types of price relationship agreements. In recent years, the OFT has focused more closely on the possible anti-competitive impact of these agreements, and will continue to consider enforcement activity where we find that competition is harmed.'
1.   The report, entitled Can 'Fair' Prices be Unfair, prepared for the OFT by Laboratorio di Economia, Antitrust, Regolamentazione (LEAR) is available from the OFT website.
2.   Online platforms are websites that act as some sort of market-place and allow buyers and sellers to meet and trade directly.

September 11, 2012 | Permalink | Comments (1) | TrackBack (0)