Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, March 9, 2013

Merger Control in China: Developments in 2012

Posted by D. Daniel Sokol

Michael Han & Richard Hughes (Freshfields Bruckhaus Deringer LLP) summarize Merger Control in China: Developments in 2012.

ABSTRACT: 2012 was the Year of the Dragon. The Dragon is the most dynamic of China's twelve zodiac signs and China's antitrust merger control regime developed with corresponding vigor in 2012. This article summarizes the key developments and the significance of these developments for businesses.

March 9, 2013 | Permalink | Comments (0) | TrackBack (0)

Friday, March 8, 2013

Competition Among the Exchanges before the SEC: Was the NYSE a Natural Hegemon?

Posted by D. Daniel Sokol

Eugene N. White (Rutgers) asks Competition Among the Exchanges before the SEC: Was the NYSE a Natural Hegemon?

ABSTRACT: Improved information technology and higher volume should drive orders to be concentrated in one market, lowering the costs of transactions. However, the opposite occurred during the bull market of the 1920s when rapid technological change spawned a flood of new issues. This paper employs newly recovered data for 1900-1933 on the volume and seat prices of regional exchanges to examine how these rivals successfully competed with the NYSE, leading to its relative decline at the zenith of the market. The history of U.S. exchanges reveals that the tendency towards concentration of trading is periodically reversed when new industries, whose technologies are risky and unfamiliar, are more easily accommodated by existing or new rivals to the dominant exchange.

March 8, 2013 | Permalink | Comments (0) | TrackBack (0)

Innovation strategies of German firms: The effect of competition and intellectual property protection

Posted by D. Daniel Sokol

Olga Slivko (ZEW) has written on Innovation strategies of German firms: The effect of competition and intellectual property protection.

ABSTRACT: This article analyzes how the perceived effectiveness of intellectual property protection and competitive pressure affect firms' innovation strategy choices, concretely, whether to abstain from innovation, to introduce products that are known in the market but new to the firm (imitation) or to introduce market novelties (innovation). Using a sample of 1253 German firms from manufacturing and services sectors I show that the perceived effectiveness of patent protection positively affects firms' propensity to imitate and to innovate. Having a small or a medium number of competitors positively affects firms' propensity to imitate and to innovate as compared to being a monopolist or having a large number of competitors. However, this effect varies with the perceived patent protection effectiveness. If the perceived patent protection effectiveness is low or medium, both innovation and imitation are enhanced, whereas if it is ! high, only innovation is enhanced.

March 8, 2013 | Permalink | Comments (0) | TrackBack (0)

Merger Remedies in China: Past, Present, and Future

Posted by D. Daniel Sokol

HAN Wei (University of Chinese Academy of Sciences) describe Merger Remedies in China: Past, Present, and Future.

ABSTRACT: Even though the Anti-Monopoly Law of the People's Republic of China ("AML") has been in force for a relatively short span of time, antitrust law enforcement in China has attracted the attention of observers around the world. The main reason concerns curiosity regarding how the Chinese competition authorities review global M&A transactions. In the past few years, the Chinese Ministry of Commerce ("MOFCOM") has approved a series of global transactions-such as Google's acquisition of Motorola's mobile business or the two hard disk drive deals-subject to conditions though.

This article will first discuss the legislation on merger remedies in China. Then, it will provide background on some of the cases where remedies were imposed. Finally, the article will point to the problems encountered in the merger remedy area in China-both in the existing legislation and in MOFCOM's case practice-and I will put forward some personal suggestions on how these problems can be solved.

March 8, 2013 | Permalink | Comments (0) | TrackBack (0)

Under the Cover of Antidumping: Does Administered Protection Facilitate Domestic Collusion?

Posted by D. Daniel Sokol

Kara M. Reynolds, American University - Economics, asks Under the Cover of Antidumping: Does Administered Protection Facilitate Domestic Collusion?

ABSTRACT: Anecdotal evidence suggests that domestic firms can use the antidumping petition process to engage in collusion and increase domestic prices. In this paper, I test whether the antidumping petition process itself can help domestic firms raise prices. I propose a method to identify whether firms in the industry experience a structural break in the level of market power held by the firms at the time that they file their antidumping petition. I then use this methodology to analyze the impact of antidumping petitions on competition levels in two industries. I find little evidence that either of these industries increased their market power following the filing of petitions for trade relief, nor even from the protection that resulted from these petitions, suggesting that the widespread belief that antidumping leads to more market power may not always hold.

March 8, 2013 | Permalink | Comments (0) | TrackBack (0)

Thursday, March 7, 2013

Assesing the Impact of Competition on the Efficiency of Italian Airports

Posted by D. Daniel Sokol

Tiziana D’Alfonso (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"), Cinzia Daraio (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza") and Alberto Nastasi (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza") are Assesing the Impact of Competition on the Efficiency of Italian Airports.

ABSTRACT: This paper provides new empirical evidence on the efficiency of Italian airports. Analysing data on 2010 trough conditional fficiency measures, we find that competition affects mostly the frontier of best performers, whilst airports that are lagging behind are less influenced by it. By applying a novel two stage approach, we show that competition has an inverse U-shape impact. Finally, the bi-modal shape of the distribution of pure efficiency indicates the existence of two differently managed groups of airports.

March 7, 2013 | Permalink | Comments (0) | TrackBack (0)

Regulation of Road Accident Externalities when Insurance Companies have Market Power

Posted by D. Daniel Sokol

Maria Dementyeva (VU University Amsterdam), Paul R. Koster (VU University Amsterdam), and Erik T. Verhoef (VU University Amsterdam) discuss Regulation of Road Accident Externalities when Insurance Companies have Market Power.

ABSTRACT: Accident externalities are among the most important external costs of road transport. We study the regulation of these when insurance companies have market power. Using analytical models, we compare a public-welfare maximizing monopoly with a private profit-maximizing monopoly, and markets where two or more firms compete. A central mechanism in the analysis is the accident externality that individual drivers impose on one another via their presence on the road. Insurance companies will internalize some of these externalities, depending on their degree of market power. We derive optimal insurance premiums, and "manipulable" taxes that take into account the response of the firm to the tax rule applied by the government. Furthermore, we study the taxation of road users under different assumptions on the market structure. We illustrate our analytical results with numerical examples, in order to better understand the determinants of the relative performance of different market structures.

March 7, 2013 | Permalink | Comments (0) | TrackBack (0)

Pay What You Want as a Marketing Strategy in Monopolistic and Competitive Markets

Posted by D. Daniel Sokol

Klaus M. Schmidt (University of Munich), Martin Spann (University of Munich) and Robert Zeithammer (UCLA) explain Pay What You Want as a Marketing Strategy in Monopolistic and Competitive Markets.

ABSTRACT: Pay What You Want (PWYW) can be an attractive marketing strategy to price discriminate between fair-minded and selfish customers, to fully penetrate a market without giving away the product for free, and to undercut competitors that use posted prices. We report on laboratory experiments that identify causal factors determining the willingness of buyers to pay voluntarily under PWYW. Furthermore, to see how competition affects the viability of PWYW, we implement markets in which a PWYW seller competes with a traditional seller. Finally, we endogenize the market structure and let sellers choose their pricing strategy. The experimental results show that outcome-based social preferences and strategic considerations to keep the seller in the market can explain why and how much buyers pay voluntarily to a PWYW seller. We find that PWYW can be viable in isolation, but it is less successful as a competitive strategy because it d! oes not drive traditional posted-price sellers out of the market. Instead, the existence of a posted-price competitor reduces buyers’ payments and prevents the PWYW seller from fully penetrating the market. If given the choice, the majority of sellers opt for setting a posted price rather than a PWYW pricing. We discuss the implications of these results for the use of PWYW as a marketing strategy.

March 7, 2013 | Permalink | Comments (0) | TrackBack (0)

A Discussion of MOFCOM's Competitive Analysis in 2012 From an Economic Perspective

Posted by D. Daniel Sokol

Elizabeth Xiao-Ru Wang & Sharon Pang (Charles River Associates) provide A Discussion of MOFCOM's Competitive Analysis in 2012 From an Economic Perspective.

ABSTRACT: Understanding the requirements of different merger control regimes and coordinating a coherent approach across multiple jurisdictions is crucial to a successful global M&A strategy. China has become a major regulatory hurdle for cross-border transactions with a growing number of global mergers and acquisitions facing extensive scrutiny by its merger control agency, the Anti-Monopoly Bureau at the Ministry of Commerce ("MOFCOM"). Since China's Anti-Monopoly Law ("AML") came into effect in 2008 through December 2012, MOFCOM has reviewed more than 520 filings. Of these, it has rejected one transaction outright and approved 16 others with conditions. In those transactions in which it intervened, MOFCOM raised considerable competitive concerns.

While economic analysis has clearly played an increasingly important role in MOFCOM's merger review, relatively little information is available to shed light upon the analytical framework employed by MOFCOM beyond the information documented in the published decisions. MOFCOM issued an official decision for each of the 17 transactions in which it intervened. The decisions summarize the agency's economic findings and discuss its competitive concerns. In this article, we examine the six decisions issued in 2012, discuss MOFCOM's evaluation of each key factor in a standard competitive analysis, and summarize the overall trends of MOFCOM's analysis of these economic factors.

March 7, 2013 | Permalink | Comments (0) | TrackBack (0)

Forging a SHIELD against patent trolls

Posted by D. Daniel Sokol

David Balto has written about Forging a SHIELD against patent trolls. Separately, he also has some nice things to say about Chairman Ramirez at the FTC.

March 7, 2013 | Permalink | Comments (0) | TrackBack (0)

Market Structure and Cost Pass-Through in Retail

Posted by D. Daniel Sokol

Nicholas Li (Bank of Canada) and Gee Hee Hong (University of Toronto) discuss Market Structure and Cost Pass-Through in Retail.

ABSTRACT: We examine the extent to which vertical and horizontal market structure can together explain incomplete pass-through. We develop a model that highlights the interactions between horizontal and vertical structure and their effects on pass-through from commodity to wholesale prices and wholesale to retail prices. Using scanner data from a large U.S. retailer, we estimate product level pass-through rates for three different vertical structures: national brands, private label goods not manufactured by the retailer and private label goods manufactured by the retailer. We find that greater control of the value chain by the retailer results in higher commodity price pass-through into retail prices compared to national brands 40% higher for private label manufactured goods and 10% higher for private label non-manufactured goods. We also find substantial effects of horizontal structure on pass-through products and brands with higher market shares have higher retail markups and lower cost pass-through. Our results emphasize that accounting for both vertical and horizontal structure is important for understanding how market structure affects pass-through, as a reduction in double-marginalization can raise pass-through directly but can also reduce it indirectly by increasing market share.

March 7, 2013 | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 6, 2013

Antitrust's Democracy Deficit

Posted by D. Daniel Sokol

Harry First, New York University (NYU) - School of Law and Spencer Weber Waller, Loyola University Chicago School of Law have a very interesting paper on Antitrust's Democracy Deficit.

ABSTRACT: Over the past fifty years, many scholars have tried to explain what has caused the dramatic decrease in antitrust’s political salience, but the purpose of this article is more to describe how the shift has affected the way we now do the “antitrust enterprise” and to connect this shift to our concern for the political values that we believe underlie the antitrust laws. We connect free markets with free people, favoring open markets and the opportunity to compete as well as seeing the connection between free markets and democratic values and institutions. We also believe that a balance of institutional power is necessary to advance the goals that free markets embody.

The institutional aspects of today’s antitrust enterprise, however, are increasingly out of balance, threatening the democratic economic and political goals of the antitrust laws. The shift that Richard Hofstadter first described has led to an antitrust system captured by lawyers and economists advancing their own self-referential goals, free of political control and economic accountability. Some of this professional control is inevitable, of course, because antitrust is a system of legal ordering of economic relationships. But antitrust is also public law designed to serve public ends. Today’s unbalanced system now puts too much control in the hands of technical experts, moving antitrust enforcement too far away from its democratic roots.

We characterize the result of this shift toward technocracy as antitrust’s democracy deficit. We draw upon the concept of a democracy deficit from the literature analyzing and critiquing the European Union and the World Trade Organization. The term has generally been used to refer to policy making by unaccountable and non-transparent technocratic institutions far removed from democratic (or national) control. The concern for democratic decision making has also been reflected in a new interest in global administrative law and the importance of basic principles of transparency and due process as a way to control the administrative state. This interest in administrative law principles has likewise led to a closer examination of how well antitrust conforms to due process and institutional norms.

Our concern over antitrust’s move away from more democratically controlled institutions toward greater reliance on technical experts is not just animated by a theoretical preference for democracy. A preference for democratic institutions implicitly assumes that more democratically arranged institutions will, in general, produce preferable antitrust policies and outcomes. We think this is particularly true today, when the imbalance between democratic control and technocratic control has put antitrust on a thin diet of efficiency, one that has weakened antitrust’s ability to control corporate power. Nevertheless, our concern about a democracy deficit does not lead us to a full-throated embrace of populism. Political values change over time, affected by how the world has changed and the lessons we can take from the social sciences. Rather, we think that by redressing the democracy deficit we can move the needle back toward policies that reflect more general political understandings and views of antitrust policy and improve the institutions and outcomes for antitrust law in the process.

We begin our article by charting the democracy deficit as reflected in the conduct of the major institutions of the antitrust system — the courts, the Congress, and public enforcers — and compare the situation in the United States with that of the evolving competition law enforcement regime in Europe. In the second part of the article we explore the link between technocracy and ideology, discussing how a technocratic approach has today come to support an extreme laissez faire ideology for antitrust enforcement. Finally, our article concludes with some thoughts on why more democracy would be good for antitrust.

March 6, 2013 | Permalink | Comments (0) | TrackBack (0)

The Impact of Voidness for Infringement of Article 101 TFEU on Linked Contracts

Posted by D. Daniel Sokol

Caroline Cauffman, Maastricht University; University of Antwerp has written on The Impact of Voidness for Infringement of Article 101 TFEU on Linked Contracts.

ABSTRACT: In Cement, the Court of Justice decided that the automatic voidness provided for by Article 101(2) TFEU applies only to those contractual provisions which are incompatible with Article 101(1) TFEU. The remainder of the agreement and as well as any orders and deliveries made on the basis of the agreement, and the resulting financial obligations are not affected by Article 101(2) TFEU. Their validity is to be determined by the applicable national law. The contribution analyses their validity under Belgian, French, German, Dutch and English law and questions whether the Court of Justice should not review its position on this matter.

March 6, 2013 | Permalink | Comments (0) | TrackBack (0)

Access to Documents in Competition Files: Where do we Stand, Two Years after TGI?

Posted by D. Daniel Sokol

Gaetane Goddin, DG Competition asks Access to Documents in Competition Files: Where do we Stand, Two Years after TGI?

ABSTRACT: In 2010, the Court of Justice opened the way for taking the specificities of competition law into account while assessing requests for access to documents. In the subsequent case law, the Court has developed its balanced holistic approach by establishing a series of general presumptions of non-disclosure Important issues remain to clarify, especially in antitrust/cartel cases, and the General Court still has to align its case law.

March 6, 2013 | Permalink | Comments (0) | TrackBack (0)

China’s Antitrust Law Enforcement After the 18th Party Congress

Posted by D. Daniel Sokol

Ying Huang (Steptoe & Johnson) describes China’s Antitrust Law Enforcement After the 18th Party Congress.

ABSTRACT: On November 14, 2012, the 18th National Congress of the Communist Party of China came to a close at the Great Hall of the People in Beijing. The 18th Party Congress unveiled China's new central collective leadership headed by General Secretary Xi Jinping, and featured an important keynote political report by the incumbent president Hu Jintao, which set out the national development strategy for the next decade and beyond. In line with the policy orientation defined by the 18th Party Congress and the status quo of China's Anti-Monopoly Law ("AML") enforcement, this article tries to predict what will happen to antitrust enforcement in China after the 18th Party Congress following a brief review of the current situation.

Hu's political report at the 18th Party Congress is deemed as the consensus document endorsed by the Chinese leadership. It upholds, as much as ever, the rule of law as a fundamental principle. It also puts forward new requirements for China's reform and opening-up policy, which has been implemented for over three decades. The report calls for "deepening reform in key sectors with greater political courage and vision." Economic reform is highlighted in the report, aiming to balance the relationship between government power and market freedom.

In a subsequent speech marking the 30th anniversary of the current edition of the Constitution, Xi said, "we must firmly establish, throughout society, the authority of the Constitution and law so that our people will have faith in law." The role of the AML, which is informally referred to as the "economic constitution," has been brought into public attention in an air of heightened expectations after the 18th Party Congress. In order to predict what will happen with respect to antitrust enforcement in China, let us first review its present situation.

March 6, 2013 | Permalink | Comments (0) | TrackBack (0)

These are the Good Old Days: Foreign Entry and the Mexican Banking System

Posted by D. Daniel Sokol

Stephen Haber, Stanford University - Hoover Institution and Political Science and Aldo Musacchio, Harvard Business School - Business discuss These are the Good Old Days: Foreign Entry and the Mexican Banking System.

ABSTRACT: In 1997, the Mexican government reversed long-standing policies and allowed foreign banks to purchase Mexico’s largest commercial banks and relaxed restrictions on the founding of new, foreign-owned banks. The result has been a dramatic shift in the ownership structure of Mexico’s banks. For instance, while in 1991 only one percent of bank assets in Mexico were foreign owned, today they control 74 percent of assets. In no other country in the world has the penetration of foreign banks been as rapid or as far-reaching as in Mexico. In this work we examine some of the important implications of foreign bank entry for social welfare in Mexico. Did liberalization lead to an increase (or decrease) in the supply of credit? Did liberalization lead to an increase (or decrease) in the cost of credit? Did liberalization lead to an increase (or decrease) in the stability of the banking system?In order to answer these questions, we must first ask, "increase (or decrease), measured on what basis?" There are, in fact, two distinct conceptual frameworks through which one can assess the impact of foreign bank entry. One is concerned with measuring the short-run impacts of foreign entry on credit abundance, pricing, and observable stability using reduced form regressions. The other is an institutional economics conception of how to measure performance. It is focused on understanding whether foreign entry gave rise to difficult-to-reverse changes in the political economy of bank regulation, which will affect competition and stability in the long term, outside the period that may be observed empirically. We employ both conceptions in this paper.

March 6, 2013 | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 5, 2013

The Polish Competition Authority Submits a Draft Amendment to the Polish Competition Act: Revolution or Fine-Tuning?

Posted by D. Daniel Sokol

Marek Martyniszyn, Institute for Consumer Antitrust Studies, Loyola University Chicago School of Law; University College Dublin - School of Law and Maciej Bernatt, University of Warsaw, Centre for Antitrust and Regulatory Studies ask The Polish Competition Authority Submits a Draft Amendment to the Polish Competition Act: Revolution or Fine-Tuning?

ABSTRACT: This piece highlights and offers a brief analysis of the most important of the proposed changes to Polish competition law. The draft proposal envisages introduction of, inter alia, financial penalties for individuals, two-stage merger review process, important changes to the leniency program (including introduction of leniency plus), as well as such new tools as remedies and settlements.

March 5, 2013 | Permalink | Comments (0) | TrackBack (0)

Ten Years of DG Competition Effort to Provide Guidance on the Application of Competition Rules to the Licensing of Standard-Essential Patents: Where Do We Stand?

Posted by D. Daniel Sokol

Damien Geradin (Covington, Tilburg) asks Ten Years of DG Competition Effort to Provide Guidance on the Application of Competition Rules to the Licensing of Standard-Essential Patents: Where Do We Stand?

ABSTRACT: One of the most intractable competition issues for the European Commission (the “Commission”) over the last ten years has been to define the circumstances in which the licensing conduct or litigation strategy of a standard-essential patent (often referred to as “SEP”) holders amount to an abuse of a dominant position in breach of Article 102 of the Treaty on the Functioning of the European Union (TFEU). This issue has been particularly difficult to handle, not only because of the complex nature of the legal and economic questions it raises, but also because of the significant business issues at stake. Hundreds of millions of dollars may be at stake in licensing negotiations.

The enforcement of SEPs has made headlines in the context of the “smartphone war”, where the main device manufacturers (Google Motorola, Samsung, HTC, Nokia, etc.) have been litigating heavily in court. For instance, the patent dispute between Apple and Samsung has generated over 50 lawsuits in a variety of jurisdictions. Some of these manufacturers have also filed competition complaints on both sides of the Atlantic, as well as in other jurisdictions. These complaints have, in turn, triggered investigations into the licensing conduct and litigation strategy of several SEP holders, which will be discussed below.

Against this background, the purpose of this paper is to address the competition law issues that may be raised by the licensing conduct and/or enforcement strategy of SEP holders. Section II reviews the Commission’s efforts in recent years to address the competition law concerns raised by SEPs. It will be shown that the Commission has used a variety of approaches to attempt to set some principles regarding the licensing of SEPs. The Commission still needs to create a precedent, which is probably its intention by sending a Statement of Objections to Samsung in December 2012. Section III contains a brief conclusion.

March 5, 2013 | Permalink | Comments (0) | TrackBack (0)

Rosa Abrantes-Metz, LIBOR superstar

Posted by D. Daniel Sokol

My friend and co-author Rosa Abrantes-Metz (NYU Stern School and Global Economics Group) has done very important cartel screening academic work for LIBOR. Recently, she was invited by the FSA and CFTC to be part of the roundtables on how to reform financial benchmarks. She is the only non market participant they invited. You can see the entire proceeding (3 hours) below.

 

March 5, 2013 | Permalink | Comments (0) | TrackBack (0)

Common Errors and Misunderstandings in Competition Law: An Economist's View

Posted by D. Daniel Sokol

Stefan Buehler, University of St. Gallen - Department of Economics, addresses Common Errors and Misunderstandings in Competition Law: An Economist's View.

ABSTRACT: This paper discusses five errors and misunderstandings in the application of competition law which are particularly relevant from the perspective of an economist: 1) The notion that economists and lawyers do not mix well; 2) The notion that economists should not (but often do) disagree; 3) The (ab)use of empirical evidence; 4) The (un)importance of tacit collusion; 5) The vertical restraints conundrum.

March 5, 2013 | Permalink | Comments (0) | TrackBack (0)