Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, February 4, 2012

Bill Baer Nominated to Head DOJ Antitrust

Posted by D. Daniel Sokol

Reuters has reported that Bill Baer has been nominated to head DOJ Antitrust.Bill Baer is an exceptonal antitrust lawyer. In teaching Staples/Office Depot two weeks ago (with the help of guest lecturer Jim Fishkin of Dechert who helped try the case for the FTC) I was struck by how a case that looks so obviously correct now was not viewed that way at the time of trial. As head of BC, Bill helped make that case happen.

February 4, 2012 | Permalink | Comments (1) | TrackBack (0)

Friday, February 3, 2012

A New Competition Law in Brazil: Definitely Maybe

Posted by D. Daniel Sokol

Marcelo Calliari (TozziniFreire) and Joana Cianfarani (TozziniFreire) describe A New Competition Law in Brazil: Definitely Maybe.

ABSTRACT: As Brasil has become a major economic player, the need to have a fully modernized competition law is emerging with more stringency. Discussions have been under way within the Brasilian legislature for ten years and there are signs that a new bill could emerge soon. To prepare practitioners to the new coming law, this article analyses the main areas where changes would be introduced and the issues on which opinions remain divided.

February 3, 2012 | Permalink | Comments (0) | TrackBack (0)

The Morgan Stanley/Visa Saga: How does Economics help Address Double-Sided Markets

Posted by D. Daniel Sokol

Oliver Budzinski (University of Southern Denmark in Esbjerg, Department of Environmental and Business Economics) and Jesper Fredborg Huric Larsen (University of Southern Denmark in Esbjerg, Centre for Rural Research, Department of Environmental and Business Economics) describe The Morgan Stanley/Visa Saga: How does Economics help Address Double-Sided Markets.

ABSTRACT: In Morgan Stanley/Visa, the Commission compelled the later company to open its payment system to the former. In economics, the case raised questions dealt with under the ‘double-sided market’ theory. Apparently, that theory was not used by the Commission—which, as a result, failed to benefit from its insights regarding firms dealing with distinct customer groups such as merchants and final consumers in the case at issue.

February 3, 2012 | Permalink | Comments (0) | TrackBack (0)

Does the Net Neutrality Really Preserve the Open Internet?: A Critique From the Implications of Broadband Policy

Posted by D. Daniel Sokol

Chih-Liang Yeh, Graduate School of Social Informatics, Yuan Ze University has posted Does the Net Neutrality Really Preserve the Open Internet?: A Critique From the Implications of Broadband Policy.

ABSTRACT: This article aims to query the goal of FCC’s net neutrality rules to preserve the open Internet and address that the kernel of such a debate should focus on (or return to) the competition policy itself. Part II will depict the net neutrality development in the United States from the two-camp debate and a brief analysis of Comcast case. Part III will discuss how the FCC to codify such a vague term. Part IV will indicate the view of Europe regarding the issue of net neutrality and its new legal development. Part V will introduce a court case in Taiwan that might be involved with the discussion of net neutrality. Part VI will conclude some remarks regarding the real problem of a net neutrality regulation.

February 3, 2012 | Permalink | Comments (0) | TrackBack (0)

Thursday, February 2, 2012

An Analysis of China's Merger Control System

Posted by D. Daniel Sokol

Cui Shufeng (Ministry of Commerce) & Rong Hongzhi (Decheng District People’s Gov't) provide An Analysis of China's Merger Control System.

ABSTRACT: In the three plus years since the Anti-Monopoly Law ("AML") entered into force on August 1, 2008, China has started to enforce the antitrust review for concentrations between business operators (often called "merger control" abroad). Within this period, the sets of rules applicable to the antitrust merger review have been continually refined and the enforcement work has gained in depth. The international impact of China's law enforcement activities has also steadily increased.

February 2, 2012 | Permalink | Comments (0) | TrackBack (0)

Procompetitive infrastructure sector regulation and diffusion of innovation: The case of broadband networks

Posted by D. Daniel Sokol

Harald Gruber (European Investment Bank, Luxembourg) Pantelis Koutroumpis (Athens Business School) describe Procompetitive infrastructure sector regulation and diffusion of innovation: The case of broadband networks.

ABSTRACT: The paper assesses the scope for competition inducing infrastructure regulation in furthering the diffusion of innovation. The paper uses data on the adoption of broadband services comprising a global panel of 167 countries. The effects of different regulatory provisions are assessed. The result of this paper allows qualifying different elements of the regulatory debate on the consequences of access requirements, including mandatory unbundling. First, it suggests that interplatform competition is generally not leading to acceleration in broadband diffusion. Second, with respect to intra-platform competition, this has been analyzed at two different levels: full unbundling and retail competition. In the first case the competitor is investing in network infrastructure to be able to induce some degree of service differentiation. With retail competition the scope for service differentiation is much more limited and hence comp! etition is most likely centered on price. While both lead to faster diffusion, the results consistently show that the effect from retail competition is proportionally about twice as strong compared to unbundling. Moreover, the analysis of the time profile of the effects show that this impact on diffusion first increases until the third or fourth year after introduction, but then dissipates away. Also here one can argue that retail differentiation leads to more intense price competition and therefore faster diffusion. Different robustness checks for the results are provided.

February 2, 2012 | Permalink | Comments (0) | TrackBack (0)

Must Take Cards: Merchant Discounts and Avoided Costs

Posted by D. Daniel Sokol

Jean-Charles Rochet (Toulouse) and Jean Tirole (Toulouse) explore Must Take Cards: Merchant Discounts and Avoided Costs.

ABSTRACT: Antitrust authorities often argue that merchants cannot reasonably turn down payment cards and therefore must accept excessively high merchant discounts. The paper attempts to shed light on this “must-take cards” view from two angles. First, the paper gives some operational content to the notion of “must-take card” through the “avoided-cost test” or “tourist test”: would the merchant want to refuse a card payment when a non-repeat customer with enough cash in her pocket is about to pay at the cash register? It analyzes its relevance as an indicator of excessive interchange fees.

Second, it identifies four key sources of potential social biases in the payment card systems’ determination of interchange fees: internalization by merchants of a fraction of cardholder surplus, issuers’ per-transaction markup, merchant heterogeneity, and extent of cardholder multi-homing. It compares the industry and social optima both in the short term (fixed number of issuers) and the long term (in which issuer offerings and entry respond to profitability).

February 2, 2012 | Permalink | Comments (0) | TrackBack (0)

The evolution from sector-specific regulation towards competition law in EU telecom markets from 1997 to 2011: Different effects in practical implementation

Posted by D. Daniel Sokol

Natascha Freund, Rundfunk & Telekom-Regulierungs GmbH (RTR) and Ernst-Olav Ruhle – SBR Juconomy Consulting AG have written on The evolution from sector-specific regulation towards competition law in EU telecom markets from 1997 to 2011: Different effects in practical implementation.

ABSTRACT: The telecommunications markets in the European Union have gone through a period of rapid technological as well as economic change. After the market opening in the late 1990s, the approach to regulate these markets has likewise changed over time. Whereas a sectorspecific framework dominated the phase from 1998-2002, a more prominent role of competition law regulating telecommunications markets has become visible within the last years. The two reviews of the regulatory framework (2002 and 2010) have seen sector-specific measures being scaled back and competition law measures gaining a more prominent role. This paper tries to analyse the development from sector-specific regulation towards competition law in its application to telecommunications markets in the EU. It draws conclusions from the changes in the different reviews and demonstrates how these modifications of the framework have taken place. Additionally, the practi! cal implementations are analysed with respect to two countries. Despite the fact, that EU member states are following a joint approach (EU framework), there are still differences on the national level as regards the application of regulatory instruments and the regulation of specific markets. This can be demonstrated by looking at how national regulatory authorities conduct the process of for example market definition, market analysis, SMP designation and levying of remedies. In the paper Germany and Austria are analysed, two neighbouring countries, with similar principles in the transposition of EU frameworks into national legislation, but with strongly different outcomes as regards specific regulatory measures in terms of e.g. market analysis, price regulation, organisation of the regulatory authorities etc. Thereby we demonstrate that although the EU framework tends to achieve harmonisation, there are still a number of differences between member states in practical implementation. The paper is organised as follows: after the introduction i n section 1, section 2 draws the picture of the development of the most important elements of the EU regulatory framework over time. Thereby. we specifically look at the issues of market definition, analysis and dominance designation but also issues of access and interconnection are analyzed. This encompasses conclusions regarding the overall trends of development in the design of the EU regulatory framework. Section 3 analyses the corresponding developments in the Austrian and the German telecommunications act, especially with respect to the balance between the role of sector-specific regulation and competition law in national legislation. This is done be looking at some specific topics such as, market definition and analysis, organization of the regulatory authority, potential conflicts between regulatory authority and competition authority regarding competences and responsibilities, possibilities of enforcement, and the treatment of margin squeeze. Section 4 contains our ! conclusions with respect to the practical implementation in member states against the overall goal of harmonisation and demonstrates differences in the way EU legislation has been transposed to national legislation in a comparison between Germany and Austria.

February 2, 2012 | Permalink | Comments (0) | TrackBack (0)

The Autonomy of sector-specific regulation – Is It still worth protecting? further thoughts on the parallel application of competition law and regulatory instruments

Posted by D. Daniel Sokol

Aleksander Stawicki, Center for Antitrust and Regulatory Studies has written on The Autonomy of sector-specific regulation – Is It still worth protecting? further thoughts on the parallel application of competition law and regulatory instruments.

ABSTRACT: This article sets out to contribute to the on-going discussion regarding the relationship between competition law and sector-specific regulation, as well as the parallel application of competition law and regulatory instruments. Thus, this article attempts to provide a systematic outline of arguments which are conclusive for the proposition that sector-specific regulation must remain fully autonomous, while taking a critical stance with respect to the views of both the Supreme Court and academic lawyers who advocate the supremacy of competition law.

February 2, 2012 | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 1, 2012

Brands, Consumer Protection, and Antitrust—Why China is Special

Posted by D. Daniel Sokol

David Stallibrass (UIBE & RBB Econ.) & Jenny Xiaojin Huang (CASS) explain Brands, Consumer Protection, and Antitrust—Why China is Special.

ABSTRACT: From China's first and only decision to block a merger, involving the purchase of the Huiyuan juice brand by Coca-Cola, brands have been widely observed to be one of the important factors in Chinese merger control decisions. Brands are also at the forefront of Chinese industrial policy, with a clear focus from the State Council on the need for China to improve the quality of its brands. International commentators have noticed this, and have sometimes criticized the Ministry of Commerce ("MOFCOM"), the Chinese merger authority, for an excessive focus on protecting famous Chinese brands as a result of broader industrial policy.

This paper proposes a microeconomic justification for treating brands differently in Chinese antitrust analysis. It argues that, due to the weaker level of consumer protection in China, there are good reasons for thinking that a strong brand confers more market power in China than it does in other jurisdictions, but also that this market power may have greater beneficial side-effects than it would elsewhere. As a consequence, we believe that it is correct in general to place a relative emphasis on brands in Chinese antitrust analysis, though we do not discuss to what extent MOFCOM treats brands differently from authorities in other jurisdictions, or whether the treatment of brand mergers in China is more compatible with industrial policy, social policy, or microeconomic considerations. Instead, we conclude with a discussion of the ways the special nature of brands in the Chinese economy might lead to decisions that may differ from those in alternative jurisdictions. We focus almost exclusively on merger analysis in China due to the relative scarcity of relevant enforcement decisions in other areas of the law.

February 1, 2012 | Permalink | Comments (0) | TrackBack (0)

A Political Economy Model of Merger Policy in International Markets

Posted by D. Daniel Sokol

Massimo Motta, Universitat Pompeu Fabra and Michele Ruta, World Trade Organization (WTO) offer A Political Economy Model of Merger Policy in International Markets.

ABSTRACT: This paper looks at the political economy of merger policy under autarky and in international markets. We assume that merger policy is decided by antitrust authorities — whose objective is to maximize welfare — but can be influenced by governments, which are subject to lobbying by firms (insiders or outsiders to the merger). We argue that political economy distortions may explain some of the recently observed merger policy conflicts between authorities and politicians, as well as between institutions belonging to different countries. We illustrate our analysis with applications motivated by recent merger cases that have been widely debated in the international press.

February 1, 2012 | Permalink | Comments (0) | TrackBack (0)

The Counterfactual Method in EU Competition Law: The Cornerstone of the Effects-Based Approach

Posted by D. Daniel Sokol

Damien Geradin, Covington & Burling, Tilburg University - Tilburg Law and Economics Center (TILEC), University of Michigan Law School and Ianis Girgenson describe The Counterfactual Method in EU Competition Law: The Cornerstone of the Effects-Based Approach.

ABSTRACT: In Book IX of his History of Rome (written around 25 BC) Titus Livy speculates about a hypothetical confrontation between Rome and Alexander the Great. What if Alexander had not died at the end of the Asian campaign but had returned to Europe to attack Rome? Livy argues that Rome and Carthage would have joined forces to crush the Macedonian army.

Livy’s musings represent an early example of the counterfactual method. This method can be used to assess the effects of an actual or a hypothetical event. The counterfactual describes the world in the absence of that event. If the event has already occurred, one needs to build an alternative past (this is what Livy does when he imagines Alexander’s return to Europe). If the event has not yet taken place, it is necessary to contemplate an alternative future.

The use of the counterfactual under EU competition law goes back to the seminal judgment of the Court of Justice in the Société Technique Minière case. However, until recently, this method was confined to the area of merger control. Under Articles 101 and 102 TFEU, the European Commission and the EU Courts initially adopted a “form-based” approach. This approach paid limited (if any) attention to the effects of the relevant agreement or conduct on competition and consumers. Because the aim of the counterfactual technique is to analyse the effects of a given event it had little relevance under the form-based approach.

In recent years the Commission has transitioned towards the effects-based approach. The modernisation of EU antitrust enforcement caused a renewed interest in the counterfactual technique. Counterfactuals are discussed in various Article 101 guidelines and in the Article 102 Guidance Paper. In June 2011 the Commission published a draft Guidance Paper on quantification of antitrust damages, which contains a detailed analysis of various counterfactuals.

In this paper, we examine the use of the counterfactual method in EU competition law. In our analysis, we distinguish between ex ante control (merger control and Article 101 self-assessment) and ex post scenarios (investigations under Articles 101 and 102, damages litigation).

In Section II, we examine ex ante counterfactuals. We conclude that these counterfactuals are relatively easy to establish because they are usually based on the status quo ante. For example, in merger control the Commission compares the hypothetical post-transaction world with the actual pre-transaction situation. However, the development of prospective analysis leads to more sophisticated counterfactuals which incorporate future events, such as the target’s bankruptcy in the absence of the transaction. This forward-looking counterfactual should be based on highly likely future events; the Commission and the parties should not contemplate hypothetical scenarios which cannot be predicted with a high degree of certainty.

In Section III, we consider ex post counterfactuals. These counterfactuals are much more difficult to build because they are intrinsically speculative and are always based on a hypothetical scenario. In its recent decisional practice under Article 102 TFEU the Commission attempts to demonstrate anticompetitive effects and consumer harm by relying on various comparators (e.g., by comparing prices that prevail in the affected market to average EU-wide and OECD-wide prices). We believe that this benchmarking does not amount to the “appropriate counterfactual” advocated by the Guidance Paper. The Commission should use more elaborate and robust techniques, including economic models that simulate the likely market outcome in the absence of the alleged infringement. We also criticise the Commission for relying on the concept of “infringement by object” to avoid using the counterfactual technique under Article 101 TFEU.

February 1, 2012 | Permalink | Comments (0) | TrackBack (0)

Arbitration and Competition

Posted by D. Daniel Sokol

The OECD has released Arbitration and Competition.

ABSTRACT: The use of alternative dispute resolution mechanisms, including arbitration and mediation, to resolve commercial disputes with a competition component has increased exponentially in recent years. This interplay between arbitration and competition law has stimulated a lively debate amongst academics and practitioners and has led to interesting jurisprudential developments.
Arbitration and alternative dispute resolution mechanisms are comparable processes. The recourse to this so-called ‘extra-judicial’ methods of resolving disputes is based on the willingness of the parties to defer the adjudication of the dispute to a third party, i.e. an arbitrator, mediator, or an expert, rather than to a court.
Working Party N. 3 discussed advantages and disadvantages of arbitration compared to litigation before national courts; the arbitrability of competition claims; the duty of arbitrators to apply competition law; the review by courts of an arbitral award dealing with competition claims; and the use of arbitration clauses in merger remedies.

February 1, 2012 | Permalink | Comments (0) | TrackBack (0)

New Developments in Civil Antitrust Litigation in China

Posted by D. Daniel Sokol

Zhu Li (Supreme People’s Court) has written on New Developments in Civil Antitrust Litigation in China.

ABSTRACT: The year 2011 provided significant headway for the development of antitrust-related civil actions in China. Courts not only achieved progress in terms of case acceptance and adjudication, but also made a huge step forward in the setting-up of the civil antitrust litigation system. With regard to the former, the number of antitrust-related court cases accepted and adjudicated has progressively increased, the number of judgments issued has steadily grown, and courts' trial experiences and expertise have gradually improved. With regard to the latter, the issuance of the Provisions of the Supreme People's Court on Several Issues concerning the Application of the Law in Adjudication of Monopoly-Related Civil Disputes (Draft for Comments) ("Draft Provisions") on April 25, 2011 was a major achievement.

These two features in the development of antitrust litigation are complementary -i.e., the accumulation of experience in adjudicating individual cases has been essential for the Draft Provisions and, conversely, those provisions have, to a certain extent, provided an important theoretical framework for litigated antitrust cases.

February 1, 2012 | Permalink | Comments (0) | TrackBack (0)

Entry Thresholds and Competitive Behavior Among Nonprofit Firms

Posted by D. Daniel Sokol

Teresa D. Harrison, Drexel University - Department of Economics & International Business and Jeremy P. Thornton, Samford University - Brock School of Business describe Entry Thresholds and Competitive Behavior Among Nonprofit Firms.

ABSTRACT: This paper attempts to describe the competitive behavior of charitable non-profit firms when prices and output are difficult to observe. The paper exploits cross-sectional variation in market size to estimate the number of non-profits that can be supported within a market. We find that our sample markets generally reach competitive levels once three or more firms are observed. The results also demonstrate that entry thresholds have declined over time. The paper offers several possible interpretations of these findings and future directions for our research.

February 1, 2012 | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 31, 2012

Patent Length, Investment and Social Welfare

Posted by D. Daniel Sokol

James Bergin (Queen's University) explains Patent Length, Investment and Social Welfare.

ABSTRACT: The intent of the patent system is to encourage innovation by granting the innovator exclusive rights to a discovery for a limited period of time: with monopoly power, the innovator can recover the costs of creating the innovation which otherwise might not have existed. And, over time, the resulting innovation makes everyone better off. This presumption of improved social welfare is considered here. The paper examines the impact of patents on welfare in an environment where there are large numbers of (small) innovators. With patents, because there is monopoly for a limited time the outcome is necessarily not socially optimal, although social welfare may be higher than in the no-patent state. Patent acquisition and ownership creates two opposing incentives at the same time: the incentive to acquire monopoly rights conferred by the patent spurs innovation, but subsequent ownership of those rights inhibits innovation (both ! own innovation and that of others). On balance, which effect will dominate? In the framework of this paper separate circumstances are identified under which patents are either beneficial or detrimental to innovation and welfare; and comparisons are drawn with the socially optimal level of investment in innovation.

January 31, 2012 | Permalink | Comments (0) | TrackBack (0)

Managerial incentives under competitive pressure: Experimental investigation

Posted by D. Daniel Sokol

Ahmed Ennasri (LAMETA, UFR d'Economie) and Marc Willinger (LAMETA, UFR d'Economie) explore Managerial incentives under competitive pressure: Experimental investigation.

ABSTRACT: We investigate the effects of competition on managerial incentives and effort in a laboratory experiment. Each owner offers compensation to his manager in two different contexts: monopoly and Cournot duopoly. After accepting the compensation, the manager chooses an effort level to increase the probability of reduced costs of his firm. Theory predicts that the entry of a rival firm in a monopolistic industry affects negatively both the incentive compensation and the effort level. Our experimental findings confirm that the entry of a rival firm reduces the incentive compensation but not the manager’s effort level. However, despite the reduction of the incentive compensation, the manager continues to accept the contract offers and exert the same level of effort.

January 31, 2012 | Permalink | Comments (0) | TrackBack (0)

Experimentation in Two-Sided Markets

Posted by D. Daniel Sokol

Martin Peitz (Department of Economics, University of Mannheim), Sven Rady (Department of Economics, University of Bonn), and Piers Trepper (Department of Economics, University of Munich) are writing on Experimentation in Two-Sided Markets.

ABSTRACT: We study optimal experimentation by a monopolistic platform in a two-sided market framework. The platform provider faces uncertainty about the strength of the externality each side is exerting on the other. It maximizes the expected present value of its profit stream in a continuous-time infinite-horizon framework by setting participation fees or quantities on both sides. We show that a price-setting platform provider sets a fee lower than the myopically optimal level on at least one side of the market, and on both sides if the two externalities are of approximately equal strength. If the externality that one side exerts is sufficiently weaker than the externality it experiences, the optimal fee on this side exceeds the myopically optimal level. We obtain analogous results for expected prices when the platform provider chooses quantities. While the optimal policy does not admit closed-form representations in general, we ! identify special cases in which the undiscounted limit of the model can be solved in closed form.

January 31, 2012 | Permalink | Comments (0) | TrackBack (0)

Leadership in Multi-sided Markets

Posted by D. Daniel Sokol

Federico Etro (Department of Economics, University Of Venice Ca Foscari) has posted Leadership in Multi-sided Markets.

ABSTRACT: I analyze the role of leadership in multi-sided markets as online advertising. Search and display advertising are better characterized by (respectively) quantity and price competition. A platform that reached dominance in search may have an incentive to limit services to consumers to be aggressive with the advertisers, to exploit its scale in search to build barriers to entry, or to adopt click-weighted auctions to manipulate the pricing of sponsored links. On the other side, a dominant platform in display advertising may increase the rewards of content providers to increase prices on advertisers, or may adopt exclusive clauses to predate on other platforms.

January 31, 2012 | Permalink | Comments (0) | TrackBack (0)

Monday, January 30, 2012

Price Discrimination in Many-to-Many Matching Markets

Posted by D. Daniel Sokol

Renato Gomes (Toulouse School of Economics) and Alessandro Pavan (Northwestern) explain Price Discrimination in Many-to-Many Matching Markets.

ABSTRACT: We study second-degree price discrimination in markets where the product traded by the monopolist is access to other agents. We derive necessary and sufficient conditions for the welfareand the profit-maximizing mechanisms to employ a single network or a menu of non-exclusive networks. We characterize the optimal matching schedules under a wide range of preferences, derive implications for prices, and deliver testable predictions relating the structure of the optimal pricing strategies to conditions on the distribution of match qualities. Our analysis sheds light on the distortions associated with the private provision of broadcasting, health insurance and job matching services.

January 30, 2012 | Permalink | Comments (0) | TrackBack (0)