Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Wednesday, November 7, 2012

Hungarian Competition Law & Policy: The Watermelon Omen

Posted by D. Daniel Sokol

Pal Szilagyi, (Peter Pazmany Catholic University) explores Hungarian Competition Law & Policy: The Watermelon Omen.

ABSTRACT: Looking at recent developments in Hungarian competition law and policy first gives us the impression that nothing exciting is happening. Most developments are business as usual at the national competition authority. (In Hungarian the proper name of the authority is the Gazdasagi Versenyhivatal, but for English speakers we refer to it by its initials, "GVH.") The GVH has amended some notices (e.g. on simplified procedures in merger control or on fines) and brought them into line with recent developments on the European level. There have been few antitrust decisions by the authority, but several are in the pipeline. A few of them are related to the abuse of a dominant position (e.g. a case initiated against MasterCard Europe Sprl) and some more investigations focus on suspected cartels (e.g. one on a suspected cartel in the residential mortgage sector). There was even a case where the courts annulled the decision of the GVH in a merger case because of insufficient reasoning and evidence.

One interesting event, however, could have a general impact on the application of national competition law provisions on all the Member States of the European Union. In 2006 the GVH imposed one of the largest fines in Hungarian competition law (about 7 billion HUF); the case was appealed and finally, just recently, the highest court in Hungary has made a preliminary rulings request. The value of the request to existing European case law is that the Hungarian court had asked for a preliminary ruling in a case where Article 101 TFEU was not applicable. However, the national court was of the opinion that, since the national equivalent of the article was based on Article 101 TFEU, the notions originating in EU laws must have a direct influence on the interpretation of the relevant provisions. The European Commission supported this argument and was also of the opinion that the special relationship of national and EU law makes the question posed by the national court eligible. As of October 25, 2012, Advocate General Cruz Villalón was of a different opinion, so it will be interesting to see the judgment of the ECJ.

The other very interesting issue, in the opinion of the AG, is the interpretation of the notion of object or effect types of anticompetitive agreements in cases of vertical agreements that resemble hub-and-spoke cartels.

But, more ominously, if we look at recent developments from a wider perspective, we can see some radical changes in the attitudes of the Hungarian legislature and the society.

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

How the FTC Could Beat Google

Posted by D. Daniel Sokol

Bob Lande (U Baltimore) and Jonathan Rubin explain How the FTC Could Beat Google.

ABSTRACT:

The U.S. Federal Trade Commission is rumored to be deciding whether to bring a “pure Section 5” case against Google as a result of complaints that the company unfairly favors its own offerings over those of its rivals in its search results. But the case will fail miserably at the hands of a reviewing court and the agency will be confined to relatively non-controversial enforcement violations if the FTC fails
to impose upon itself a tightly bounded and constrained legal framework that contains clear limiting principles. The only way a court will allow the FTC to pursue a pure Section 5 theory against Google would be if the agency constrains itself with a coherent principle of competitive harm: the consumer choice framework.

This brief piece only summarizes the underlying issues. Readers interested in more information about the expansive use of Section 5 of
the FTC Act should consult http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1562727. Readers interested in more information about the Consumer Choice approach to competition and consumer protection law should consult http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1121459.

 

 

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

Cross Border Service Payments Under EU Fair Competition and SEPA Rules

Posted by D. Daniel Sokol

Anca Daniela Chirita, Durham University - Department of Law addresses Cross Border Service Payments Under EU Fair Competition and SEPA Rules.

ABSTRACT: EU rules on the functioning of a Single European Payment Area (SEPA) Union-wide with free movement of cross-border services have an impact upon fair competition in the internal market for both consumers and smaller businesses. Under Article 102 (a) TFEU, the cost analysis of pricing must be supplemented by translating unfair trading terms and conditions from the field of legal analysis of contracts into that of economics. Terms and conditions which create a more onerous obligation form an integral part of an economic contract concluded by undertakings, irrespective of their market shares, based on a cogent interpretation of their significant negotiating power over EU consumers. Several practices misleading consumers clarify the above understanding using the tools of behavioural economics. The banking sector needs stronger competition intervention in the service market of general economic interest to consumers.

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

Tuesday, November 6, 2012

The FTAIA and Claims by Foreign Plaintiffs Under State Law

Posted by D. Daniel Sokol

Edward D. Cavanagh, St. John's University - School of Law discusses The FTAIA and Claims by Foreign Plaintiffs Under State Law.

ABSTRACT: In F. Hoffman LaRoche Ltd. v. Empagran S.A., 542 US 155 (2004), the Supreme Court limited access to American courts by foreign plaintiffs suing under the Sherman Act based on foreign transactions. Jurisdiction over foreign antitrust claims is governed by the Foreign Trade Antitrust Improvements Act (“FTAIA”). However, rather than parsing this opaque and poorly drafted statute, the Court drew on the doctrine of prescriptive comity and held that where a statute is vague, it should be construed narrowly so as not to interfere with the prerogatives of co-sovereigns. Alternatively, the Court concluded that if the conduct in question would have been beyond the reach of the Sherman Act prior to the enactment of FTAIA, it would not be cognizable under the FTAA because that statute was designed to limit — not expand — jurisdiction over foreign claims. The Court found that there were no pre-FTAIA cases to support jurisdiction.

On remand, the D.C. Circuit ruled that even if foreign plaintiffs could show that “but for” participation of U.S. firms in the conspiracy, they would not have been injured, their claims would still be barred. The FTAIA contemplates that (1) the illegal foreign have a “direct, substantial and reasonably foreseeable effect” on U.S. commerce; and (2) such adverse effect on foreign commerce gives rise to claims by foreign plaintiffs. Incidental or “but for” linkage does not suffice; proximate cause is the standard.

Moreover, foreign claims based on foreign transactions are also barred under the doctrines of standing and antitrust injury. Antitrust courts have traditionally denied standing to firms that were neither competitors nor consumers in the U.S. market. Similarly, the doctrine of antitrust injury limits the universe of antitrust plaintiffs to those who have suffered injury of the kind that the antitrust laws are met to protect against and that flows from that which makes the conduct unlawful. The U.S. antitrust laws were not meant to protect plaintiffs who were not participants in the U.S. market. Empagran may not eliminate antitrust actions by foreign purchasers, but the decision is a major hurdle to their successful prosecution.

November 6, 2012 | Permalink | Comments (0) | TrackBack (0)

Antidumping and market competition: implications for emerging economies

Posted by D. Daniel Sokol

Chad P. Bown (World Bank) and Rachel McCulloch (Brandeis) have written on Antidumping and market competition: implications for emerging economies.

ABSTRACT: While the original justification of the antidumping laws in the industrial economies was to protect domestic consumers against predation by foreign suppliers, by the early 1990s the laws and their use had evolved so much that the opposite concern arose. Rather than attacking anti-competitive behavior, dumping complaints by domestic firms were being used to facilitate collusion among suppliers and enforce cartel arrangements. This paper examines the predation and anti-competitiveness issues from the perspective of the"new users"of antidumping -- the major emerging economies for which antidumping is now a major tool in the trade policy arsenal. The paper examines these concerns in light of important ways in which the world economy and international trading system have been changing since the early 1990s, including more firms and more countries participating in international trade, but also more extensive links among suppli! ers and consumers through multinational firm activity and vertical specialization.

November 6, 2012 | Permalink | Comments (0) | TrackBack (0)

The consumer, once king, is missing in the EU interchange fee debate

Posted by D. Daniel Sokol

David Evans (Global Economics Group, University of Chicago) argues The consumer, once king, is missing in the EU interchange fee debate.

ABSTRACT: When the European General Court’s MasterCard Judgment came down my wife and I were celebrating a significant wedding anniversary with a long-planned trip to Sicily. Even though I was curious, and EU court decisions are most riveting, I decided to stick with a Nesbo mystery novel for my beach reading. Recently, the OECD asked me to attend a gathering of competition authorities to discuss developments in the payments industry. The time for procrastination was over. I ploughed my way through the Court’s 336 paragraphs and refreshed my memory of the European Commission’s decision.

 

I discovered there was a mystery here too: the European consumer, once the King served by EU competition authorities, has disappeared. Before I get to the consumer’s curious disappearance, I’ll provide a review of the Commission’s decision and the Court’s judgment.

November 6, 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) addresses 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 regulated monopolists’ shares will increase.

November 6, 2012 | Permalink | Comments (0) | TrackBack (0)

There is Always a First Time: Competition Developments in Austria

Posted by D. Daniel Sokol

Astrid Ablasser-Neuhuber & Gerhard Fussenegger (Hugel Rechtsanwalte OG) explain that There is Always a First Time: Competition Developments in Austria.

ABSTRACT: Within the last couple of months, Austrian competition law has followed new paths. The Austrian Cartel Court, for the first time, imposed fines for vertical infringements. Furthermore, the Austrian Federal Competition Authority: (i) accepted, for the first time, remedies within phase I; (ii) initiated, for the first time, a dawn raid in a private home; and (iii) conducted the longest dawn raid in Austrian competition law history. These developments will be outlined in more detail in the following.

November 6, 2012 | Permalink | Comments (0) | TrackBack (0)

Ex-ante margin squeeze tests in the telecommunications industry: What is a reasonably efficient operator?

Posted by D. Daniel Sokol

Germain Gaudina (Telecom Paris Tech) and Claudia Saavedra Valenzuela (Orange) ask Ex-ante margin squeeze tests in the telecommunications industry: What is a reasonably efficient operator?

ABSTRACT: In this paper, we study the adjustments made by National Regulatory Authorities to simple margin squeeze tests, in order to model a reasonably efficient operator. More precisely, by inspecting the possible differences between an entrant and an incumbent that would cause a market disadvantage for the former, we provide a formal economic framework that translates these ex-ante disadvantages into practical test adjustments. We identify five possible adjustments relevant to ex-ante margin squeeze tests, on the cost, the access charge, or the price parameters. We then review the implementation of margin squeeze tests by European telecommunications National Regulatory Authorities according to these adjustments, as to build a comparable benchmark of implementation choices.

November 6, 2012 | Permalink | Comments (0) | TrackBack (0)

Monday, November 5, 2012

Google And The FTC's Investigation: A Cautionary Tale

Posted by D. Daniel Sokol

James Cooper (George Mason) has an op-ed in Forbes on Google And The FTC's Investigation: A Cautionary Tale.

November 5, 2012 | Permalink | Comments (0) | TrackBack (0)

Chambers UK 2013 Released: Top Rated Competition Firms

Competitive Effects of Merger Remedies in Europe's High-Tech Industry

Posted by D. Daniel Sokol

Petar Angelov, Stephanie Rosenkranz and Hans Schenk (all Utrecht School of Economics) discuss the Competitive Effects of Merger Remedies in Europe's High-Tech Industry.

ABSTRACT: Using an event study methodology, this paper assesses the competitive effects of remedies implemented by the European Commission in 11 horizontal mergers in the ICT industry between 1990 and 2010. The estimates of merger announcement effects for both merging parties and competitors have predominantly insignificant residuals, suggesting that collusion and anti-competitive effects are not implied by the market reactions to merger announcements. Remedies, both behavioural and structural, appear to be largely ineffective in negating the competition concerns of the Commission, even if properly applied to anti-competitive mergers. Moreover, behavioural remedies appear to transfer rents from merging parties to competitors. These findings suggest that static economic models are ineffective in analysing dynamic markets, possibly as a result of inadequate market definitions.

November 5, 2012 | Permalink | Comments (0) | TrackBack (0)

Congestion Pricing and Net Neutrality

Posted by D. Daniel Sokol

Bruno Jullien (Toulouse School of Economics (GREMAQ-CNRS and IDEI)) and Wilfried Sand-Zantman (Toulouse School of Economics (GREMAQ and IDEI)) have written on Congestion Pricing and Net Neutrality.

ABSTRACT: We consider a network that intermediates traffic between content producers and consumers. The content is heterogenous in the cost of traffic. While, consumers do not know the traffic cost when deciding on consumption, a content producer knows his cost but may not control the consumption. The network observes only the resulting total cost of traffic and can charge a congestion price to one or both of the parties, along with an ex-ante hook-up fee to consumers. We first show that, if the content is a paid content, the network charges only the content producers and capping congestion prices for content in this case is sub-optimal. In the case of free content, the network extracts some rent from content with congestion prices and may exclude some content. We show that there is efficient or excessive exclusion of traffic. We then endogenize the choice of business model by allowing the content producers to choose between a paid model and a free model. In this case, the network charges higher congestion prices to content but the cost is smaller as some content can stay under a paid model that would be excluded otherwise. At last, we characterize an optimal mechanism which consists in letting the content producers choose between di¤erent public categories associated with different congestion prices for content and for consumers.

November 5, 2012 | Permalink | Comments (0) | TrackBack (0)

Call for papers: Forum for Economists International Amsterdam, Netherlands, May 31-June 3, 2013

Posted by D. Daniel Sokol

The Forum for Economists International (www.f4ei.org) is organizing a conference in Amsterdam,
Netherlands, May 31-June 3, 2013. Sessions will be scheduled on June 1-2, 2013.

Papers in all areas of economics and related disciplines - including finance, law & economics, management, natural resources, monetary issues, transition issues, Asian economies, European Union, etc. - are eligible for presentation.

Papers in the fields of public administration, public finance and public management are eligible for  submission to Public Finance and Management.

Abstracts (maximum 250 words) must be submitted by email (info@f4ei.org) as a Word file.

Register before January 15, 2013 to save on the submission fee.
Please visit www.f4ei.org for more details, including fees and deadlines.
You can register online.

Join the Program Committee by organizing a session with 4-5 papers. Just send your session proposal to the Program Chair, M. Peter van der Hoek (vanderhoek@ext.eur.nl).

November 5, 2012 | Permalink | Comments (0) | TrackBack (0)

Loyalty Discounts

Posted by D. Daniel Sokol

Ugur Akgun (CRA) and Ioana Chioveanu (Brunel University) explore Loyalty Discounts.

ABSTRACT: This paper considers the use of loyalty inducing discounts in vertical supply chains. An upstream manufacturer and a competitive fringe sell differentiated products to a retailer who has private information about the level of stochastic demand. We provide a comparison of market outcomes when the manufacturer uses two-part tariffs (2PT), all-unit quantity discounts (AU), and market share discounts (MS). We show that retailer ís risk attitude affects manufacturer's preferences over these three pricing schemes. When the retailer is risk-neutral, it bears all the risk and all three schemes lead to the same outcome. When the retailer is risk- averse, 2PT performs the worst from manufacturer's perspective but it leads to the highest total surplus. For a wide range of parameter values (but not for all) the manufacturer prefers MS to AU. By limiting the retailer's product substitution possibilities MS makes the demand for manufacturer's product more inelastic. This reduces the amount (share of total profits) the manufacturer needs to leave to the retailer for the latter to participate in the scheme.

November 5, 2012 | Permalink | Comments (0) | TrackBack (0)

Price Competition and Consumer Confusion

Posted by D. Daniel Sokol

Ioana Chioveanu (Brunel) and Jidong Zhou (NYU) describe Price Competition and Consumer Confusion.

ABSTRACT: This paper proposes a model in which identical sellers of a homogenous product compete in both prices and price frames (i.e., ways to present price information). Frame choices affect the comparability of price offers, and may cause consumer confusion and lower price sensitivity. In equilibrium, firms randomize their frame choices to obfuscate price comparisons and sustain positive profits. The nature of equilibrium depends on whether frame differentiation or frame complexity is more confusing. Moreover, an increase in the number of competitors induces firms to rely more on frame complexity and this may boost industry profits and lower consumer surplus.

November 5, 2012 | Permalink | Comments (0) | TrackBack (0)

Sunday, November 4, 2012

CARTELS IN PUBLIC PROCUREMENT

Posted by D. Daniel Sokol

Alberto Heimler (Italian School of Public Administration) has written on CARTELS IN PUBLIC PROCUREMENT.

ABSTRACT: Public procurement markets differ from all others because quantities do not adjust with prices but are fixed by the bidding authority. As a result, there is a high incentive for organizing cartels (where the price elasticity of demand is zero below the base price) that are quite stable because there are no lasting benefits for cheaters. In such circumstances, leniency programs are unlikely to help discovering cartels. Since all public procurement cartels operate through some form of bid rotation, public procurement officials have all the information necessary to discover them (although they have to collect evidence on a number of bids), contrary to what happens in normal markets where customers are not aware of the existence of a cartel. However, in order to promote reporting, the structure of incentives has to change. For example, the money saved from a cartel should at least, in part, remain with the administration that helped discover it and the reporting official should reap a career benefit. In any case, competition authorities should create a channel of communication with public purchasers so that the public purchasers would know that informing the competition authority on any suspicion at bid rigging is easy and does not require them to provide full proof.

November 4, 2012 | Permalink | Comments (0) | TrackBack (0)