Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, April 20, 2013

Critical Considerations on the Commission’s Commitment to the Commitment Procedure

Posted by D. Daniel Sokol

Florian Wagner-von Papp (UCL) offers his thoughts on Critical Considerations on the Commission’s Commitment to the Commitment Procedure.

ABSTRACT: Article 9 Regulation (EC) 1/2003 introduced the commitment procedure into European Union ("EU") law. What was initially expected to be a marginal modification of the Commission's existing practice, intended to make the informal practice of settling cases more transparent, has since developed into the de facto default type of decision for non-cartel cases. In a speech delivered on March 8, 2013, the Vice President of the European Commission Joaquín Almunia noted with a certain pride that "in the ten years since Regulation 1/2003 gave the commitment option to companies," "[o]ut of 41 decisions taken by the Commission, we have had 15 prohibitions and 26 commitments."

There are various reasons why the Commission has grown fond of the commitment procedure, many of which are perfectly legitimate.

April 20, 2013 | Permalink | Comments (0) | TrackBack (0)

Friday, April 19, 2013

Smokescreen: How Managers Behave When They Have Something To Hide

Posted by D. Daniel Sokol

Tanja Artiga Gonzalez (Swiss Institute of Banking and Finance, University of St. Gallen), Markus Schmid (Swiss Institute of Banking and Finance, University of St. Gallen), and David Yermack (Stern School of Business NYU) have a very interesting paper on Smokescreen: How Managers Behave When They Have Something To Hide. Highly recommended.

ABSTRACT: We study financial reporting and corporate governance in 216 U.S. companies accused of price fixing by antitrust authorities. We document a range of strategies used by these firms when reporting financial results, including frequent earnings smoothing, segment reclassification, and restatements. In corporate governance, cartel firms favor outside directors who are likely to be inattentive monitors due to their status as foreign or “busy.” When directors resign, they are often not replaced, and new auditors are rarely engaged. Cartel managers exercise their stock options faster than managers of other firms. While our results are based only upon firms engaged in price fixing, we expect that they should apply generally to all companies in which managers seek to conceal poor performance or personal wrongdoing.

April 19, 2013 | Permalink | Comments (0) | TrackBack (0)

R&D Incentives in Vertically Related Markets

Posted by D. Daniel Sokol

Ahmad Reza Saboori Memar (University of Giessen and University of California San Diego) & Georg Gotz (University of Giessen) discuss R&D Incentives in Vertically Related Markets.

ABSTRACT: This paper focuses on incentives to invest in research and development (R&D) in vertically related markets. In a bilateral duopoly setup, we consider how process R&D incentives of the firms in both upstream and downstream market depend on the intensity of simultaneous interbrand and intrabrand competition. Among the results: both interbrand and intrabrand competition have twofold effects on R&D incentives. Existence of a vertically related market with imperfect competition lowers both the incentives to invest in process R&D and the competitive advantage through the R&D investment. We will show how the impact of a firm's R&D investments in either market on consumer surplus as well as on the profits of all firms in both markets depends on exogenous parameters.

April 19, 2013 | Permalink | Comments (0) | TrackBack (0)

Evaluation of competition enforcement and advocacy activities: results of an OECD survey

Posted by D. Daniel Sokol

The OECD has published Evaluation of competition enforcement and advocacy activities: results of an OECD survey.

ABSTRACT: Is competition policy effective? What benefits does it bring to consumers? Governments and citizens are asking these questions, especially in Western countries where the recession is leading to strong budget cuts in the public sector. The OECD has surveyed 46 competition agencies to find out whether they assess the impact of their activities and what kind of information they provide to the government and the public. The survey has found out that all of them publish annual reports describing their activities and that almost half of them also provide, or will soon start to provide, an assessment of the likely savings that will accrue to consumers as a result of the interventions they have undertaken in the course of the year against cartels, abusive behaviours, and anticompetitive mergers. The survey has also ascertained that over half of agencies perform assessments of the effects of specific decisions a few years after these have been implemented to assess how effective these have been and whether any lessons can be learnt from them for future interventions.

April 19, 2013 | Permalink | Comments (0) | TrackBack (0)

You Made a Pledge, Then Keep Your Promise: Article 9 Commitments Decisions in European Antitrust Law

Posted by D. Daniel Sokol

Paul McGeown & Juliette Orologas (Wilson Sonsini) have written on You Made a Pledge, Then Keep Your Promise: Article 9 Commitments Decisions in European Antitrust Law.

ABSTRACT: Until the European Commission slapped a U.S. $730 million fine on Microsoft at the beginning of March 2013 for failing to comply with the "choice screen" commitment that it had made in 2009 to close the Internet Explorer case, part-time antitrust watchers could have been forgiven for believing that a European Article 9 decision was akin to a settlement. The result was, after all, a textbook "win-win." The Commission could close its file without needlessly expending scarce resources on the prosecution of an investigation; it could assert that it had corrected the perceived-though not proven-anticompetitive effects of certain behavior quickly through a tailored remedy; and it could repeat its claim to being a consumer-champion, all without undue fear of its decision being overruled in the courts. Back at corporate headquarters, meanwhile, the boards of the companies concerned could announce that they had spared the business a costly, drawn-out procedure-the outcome of which was unpredictable-and avoided a formal ruling that the company had infringed the competition rules; they could also be confident that for all practical purposes they had side-stepped costly follow-on damages actions before national courts.

But, as the Microsoft case reminds us, it never was thus.

People talk colloquially about European competition law "settlements," but often confuse "remedies" imposed by the Commission, "commitments" offered by the parties, and "settlements" where a member of cartel admits liability in return for a reduced fine. Indeed it is reported that in December 2012 even Commissioner Almunia misused the "s" word, when speaking about the "constructive discussions" that DG COMP was having with Penguin Books about "a possible settlement" of the e-Books case. That is not what an Article 9 decision is. It is a commitments decision, a promise by a corporation to do or not to do something. And its failure to keep its promise is actionable. So why on balance do so many corporations sign up to them?

April 19, 2013 | Permalink | Comments (0) | TrackBack (0)

Collusion Among Many Firms: The Disciplinary Power of Targeted Punishment

Posted by D. Daniel Sokol

Catherine Roux (University of St.Gallen) and Christian Thoni (University of Lausanne) have an interesting paper on Collusion Among Many Firms: The Disciplinary Power of Targeted Punishment. Recommended.

ABSTRACT: We explore targeted punishment as an explanation for collusion among many rms. In a series of Cournot oligopoly experiments with various numbers of firms, we compare production decisions with and without the possibility to target punishment at specific market participants. We find strong evidence that targeted punishment enables firms to establish and maintain collusion. More so, we find that the collusive effect of targeted punishment is even stronger in markets with more competitors, suggesting a reversal of the conventional wisdom that collusion is easier the fewer the firms.

April 19, 2013 | Permalink | Comments (0) | TrackBack (0)

Thursday, April 18, 2013

Profitable Entry into an Unprofitable Market

Posted by D. Daniel Sokol

Ahmad Reza Saboori Memar (University of Giessen and University of California San Diego, Department of Economics) explores Profitable Entry into an Unprofitable Market.

ASBTRACT: This paper shows how market entry into an unprofitable market can be profitable for a firm. A firm's expansion into a new market can have a beneficial feedback effect for that firm in its “old market”. By entering into a new market, the firm increases its produced quantity and has higher incentives to invest in process R&D. This is a credible signal to the competitors that the firm will be more aggressive in its R&D investments. This weakens the competitors since they scare off and invest less in process R&D. This feedback effect of expanding in foreign markets increases the profits of the expanding firm in its “old market” and if this profit gain exceeds the losses through market entry, then the market entry is profitable for the firm. I also consider how the results change under Bertrand vs Cournot regime and how results change if price discrimination is possible or not. Beside that I show how higher R&D costs or lower demand in a market can lead to lower profits of one firm, but higher profits of the other firm.

April 18, 2013 | Permalink | Comments (0) | TrackBack (0)

Price Formation in Consumer Markets

Posted by D. Daniel Sokol

Ante Farm, Swedish Institute for Social Research (SOFI), Stockholm University has written about Price Formation in Consumer Markets.

ABSTRACT: This paper argues that a completely non-cooperative approach to pricing is neither necessary nor plausible in consumer markets. It proposes instead a model where firms decide non-cooperatively on production or marketing, while the market price is set by a competitive price leader, i.e. a firm preferring the lowest market price. Predictions include a revenue maximizing market price and excess supply in markets where production precedes sales, and non-monopolistic pricing if firms are ‘sufficiently dissimilar’ in markets where sales precede production. The model also provides a simple and plausible explanation of why markets do not always clear.

April 18, 2013 | Permalink | Comments (0) | TrackBack (0)

Comparative versus Informative Advertising in Oligopolistic Markets

Posted by D. Daniel Sokol

Maria Alipranti (University of Crete), Evangelos Mitrokostas (Department of Economics, University of Crete), and Emmanuel Petrakis (Department of Economics, University of Crete, Greece) analyze Comparative versus Informative Advertising in Oligopolistic Markets.

ABSTRACT: This paper investigates the firms’ incentives to invest in informative and/or comparative advertising, in an horizontally differentiated oligopolistic market. We show that in equilibrium, the firms’ optimal decision is to invest in a combination of informative and comparative advertising. The expenditure levels on each type of advertising are determined by the degree of substitution between the products. Further, through the comparison with the benchmark case without advertising activities and the mere informative advertising case, we show that firms’ investment in both types of advertising always leads to higher output and lower profits. Finally, the impact of advertising on social welfare is also discussed.

April 18, 2013 | Permalink | Comments (0) | TrackBack (0)

The European Commission’s Practice Under Article 9 Regulation 1/2003: A Commitment a Day Keeps the Court Away?

Posted by D. Daniel Sokol

Paul Lugard & Martin Mollmann (Baker Botts) ask The European Commission’s Practice Under Article 9 Regulation 1/2003: A Commitment a Day Keeps the Court Away?

ABSTRACT: No less than three recent high profile cases have put the EU antitrust commitment procedure in the spotlights. First, while the U.S. Federal Trade Commission ("FTC") recently announced that it had terminated its investigation into Google's services regarding search engines and web advertising, the EU Commission's parallel attempts to reach an agreement with Google on similar commitments have been ongoing for about a year and are expected not to be finalized before Autumn 2013. Second, on March 6, 2013 the Commission imposed a EUR 561 million (U.S.$794 million) fine on Microsoft for having breached its 2009 "choice screen" commitment intended to offer consumers a choice of web browsers. Finally, on March 13, 2013, the Commission published in the Official Journal the text of the December 2012 commitment decision regarding the e-Books investigation involving Apple and four publishers. These three matters underscore the importance of the EU commitment procedure, and the controversies surrounding the use of this EU-style consent decree procedure.

As with all good things in life, the commitments procedure should be used with moderation to avoid indigestion. Although the commitment procedure was only introduced in 2004 in EU antitrust proceedings as a means to rapidly resolve cases, it has over the past years become a cornerstone of the Commission's antitrust policy. Such success was not foreseen. In fact, when the Article 9 of Regulation 1/2003 was introduced, a prominent former EU Commission official expected the commitment procedure to remain an exceptional, alternative enforcement instrument in the Commission's toolbox.

While the Commission already had the means to informally settle antitrust investigations prior to the adoption of Regulation 1/2003, Article 9 provided it with a clearer legislative framework and, importantly, clarified the rights of third parties.

It is sometimes argued that the commitment procedure of Article 9 has been inspired by a long standing U.S. procedure which allows the Department of Justice ("DOJ") and the FTC to settle investigations by "consent decrees" (DOJ) or "consent orders" (FTC). These instruments are used in the vast majority of proceedings and allow the agencies to close a case on the basis of agreed concessions. One important difference with the EU system is, however, that DOJ decrees are reviewed by courts to determine whether the decree is in the public interest. Also, contrary to the EU system, U.S. negotiated settlements may include fines imposed on companies.

The frequent use of the EU commitment procedure supports the idea that the EU and the U.S. systems are converging. The frequency of negotiated outcomes on both sides of the Atlantic leads to similar questions, in particular with respect to the desired level of legal certainty and guidance, as well as the role and interests of third parties.

An antitrust enforcement system based solely on infringement procedures without any room for negotiated outcomes would undoubtedly be inefficient and inappropriate. But the question is whether the extensive use by the Commission of this new enforcement tool and the (partly self-inflicted) marginalization of the European Court of Justice ("ECJ") in this area have not overshadowed the need to establish a balance between enforcement efficiencies on the one hand, and imperatives of legal certainty, due process, and non-discrimination on the other.

April 18, 2013 | Permalink | Comments (0) | TrackBack (0)

Threshold of Preference for Collusion and Interconnection Fees in Different Market Structures : the Tunisian Mobile Market Case

Posted by D. Daniel Sokol

Sami Debbichi (University of Recherche) and Walid Hichri (University of Lyon) offer Threshold of Preference for Collusion and Interconnection Fees in Different Market Structures: the Tunisian Mobile Market Case.

ABSTRACT: We present a Cournot model that compares the critical threshold of collusion in Duopoly and Oligopoly Markets where the actors are private, mixed or public. We assume that the incentive critical threshold for collusion depends on the interconnection fees. The different threshold values calculated in each Market structure are then estimated, using the OLS method, with variables related to the Tunisian market structures and prices. The Econometric estimation of the different threshold values is consistent with our theoretical results. Our findings can be used by the decision makers to control collusion, by acting on the level of interconnection fees for each market structure and by implementing the suitable market liberalization policies in this sector.

April 18, 2013 | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 17, 2013

Standard Essential Patents: who is really holding up (and when)?

Posted by D. Daniel Sokol

Vilen Lipatov, Gregor Langus, Damien Neven (Graduate Institute of International Studies) ask Standard Essential Patents: who is really holding up (and when)?

ABSTRACT: This paper analyzes the effect of injunctions on royalty negotiations for standard essential patents. We develop a model in which courts grant injunctions only when they have sufficient evidence that the prospective licensee is unwilling, in line with the way we understand Courts to operate in Europe. In such a framework the prospective licensee has a powerful strategic tool: the offers that he makes to the patent holder will affect the royalty rate that the Court may adopt as well as the probability of being subject to injunctions (and the liability for litigation costs). We find that despite the availability of injunctions, the holder of a sufficiently weak patent will end up accepting below FRAND rates, in particular when litigation cost are high. We also find that the prospective licensee will sometimes prefer to litigate and the holder of a sufficiently strong patent will always end up in litigation by rejecting offers below FRAND. This arises in particular when the prospective licensee has little to fear from being found unwilling, namely when the trial takes time (so that the threat of injunctions is less powerful), and when litigation costs are low. Importantly, we thus find that hold up (royalties above the fair rate) as well as reverse hold up (royalties below the fair rate) may arise in equilibrium.

April 17, 2013 | Permalink | Comments (0) | TrackBack (0)

Crime and punishment: When tougher antitrust enforcement leads to higher overcharge

Posted by D. Daniel Sokol

Sissel Jensen (Dept. of Economics, Norwegian School of Economics and Business Administration), Ola Kvaloy (University of Stavanger), Trond Olsen (Dept. of Economics, Norwegian School of Economics and Business Administration) and Lars Sorgard (Dept. of Economics, Norwegian School of Economics and Business Administration) address Crime and punishment: When tougher antitrust enforcement leads to higher overcharge.

ABSTRACT: The economics of crime and punishment postulates that higher punishment leads to lower crime levels, or less severe crime. It is however hard to get empirical support for this intuitive relationship. This paper offers a model that contributes to explain why this is the case. We show that if criminals can spend resources to reduce the probability of being detected, then a higher general punishment level can increase the crime level. In the context of antitrust enforcement, it is shown that competition authorities who attempt to caught cartels by means of tougher sanctions for all offenders may actually lead cartels to increase their overcharge when leniency programs are in place.

April 17, 2013 | Permalink | Comments (0) | TrackBack (0)

Large buyers, preferential treatment and cartel stability

Posted by D. Daniel Sokol

Manel Antelo (Universidade de Santiago de Compostela) and Lluis Bru (Universitat de les Illes Baleares) discuss Large buyers, preferential treatment and cartel stability.

ABSTRACT: Bilateral deals for large clients or key account management (henceforth KAM) is traditionally justified in terms of the importance of a long-term association between a firm and such clients. However, in this paper we offer a different rationale for a seller to apply KAM to its large buyers. When facing large buyers, a firm can use KAM to deal with such buyers but not to small individual buyers in order to segment the market, charge higher prices to non-KAM buyers, and increase its profits. Paradoxically, the implementation of KAM by the seller makes it advantageous for customers to belong to a buyer group, thereby eliminating the instability that would otherwise plague the creation of the group. The formation of a buyer group thus ultimately depends on the pressure it puts upon the seller to resort to KAM to segment the market.

April 17, 2013 | Permalink | Comments (0) | TrackBack (0)

The Increasing (Ab)use of Commitments in European Antitrust Law: Stockholm Syndrome

Posted by D. Daniel Sokol

Stefano Grassani (Pavia e Ansaldo) describes The Increasing (Ab)use of Commitments in European Antitrust Law: Stockholm Syndrome.

ABSTRACT: If an "EU antitrust hot topic of the month" award were to be attributed for March 2013, the prize would certainly go to the issue of commitments pursuant to article 9 of Regulation 1/2003, which made the front page of most antitrust newswires and blogs thanks to two notable cases.

On the one hand, on March 6, 2013, the Commission adopted a decision imposing a fine of U.S.$794 million on Microsoft for failure to comply with undertakings offered, in 2009 to the European Commission, in exchange for the closing of the abuse-of-dominance investigation related to the alleged tying of Internet Explorer and the Windows operating system. On the other hand, on March 13, 2013, the Commission published in the Official Journal of the European Union the text of its December 2012 decision where it had accepted commitments from Apple and four publishers in connection with a supposed concerted practice as to retail prices of e-Books.

Ten years after the enactment of Regulation 1/2003, these decisions give us the occasion for a few reflections on the subject of the institutional and philosophical implications that stem from the insertion in the EU framework of commitments as means to preempt further public enforcement action on the merits.

April 17, 2013 | Permalink | Comments (0) | TrackBack (0)

Experimentation in Two-Sided Markets

Posted by D. Daniel Sokol

Martin Peitz (Mannheim) Sven Rady (Bonn) and Piers Trepper (Munich) discuss Experimentation in Two-Sided Markets.

ABSTRACT: We study optimal experimentation by a monopolistic platform in a two-sided market. 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 sides are approximately symmetric. If the externality that one side exerts is sufficiently well known and 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 pol- icy 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.

April 17, 2013 | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 16, 2013

Price setting with menu cost for multi-product firms

Posted by D. Daniel Sokol

Fernando Alvarez (University of Chicago) Francesco Lippi (University of Sassari and EIEF) describe Price setting with menu cost for multi-product firms.

ABSTRACT: We model the decisions of a multi-product firm that faces a fixed “menu” cost; once it is paid, the firm can adjust the price of all its products. We characterize analytically the steady state firm’s decisions in terms of the structural parameters: the variability of the flexible prices, the curvature of the profit function, the size of the menu cost, and the number of products sold. We provide expressions for the steady state frequency of adjustment, the hazard rate of price adjustments, and the size distribution of price changes, all in terms of the structural parameters. We study analytically the impulse response of aggregate prices and output to a monetary shock. The size of the output response and its duration increase with the number of products, they more than double as the number of products goes from 1 to ten, quickly converging to the ones of Taylor’s staggered price model.

April 16, 2013 | Permalink | Comments (0) | TrackBack (0)

Paying not to sell

Posted by D. Daniel Sokol

E. Bacchiega (Bologna), O. Bonroy (INRA) and R. Mabrouk (Grenoble) suggest Paying not to sell.

ABSTRACT: In this paper we show that, in the presence of buyer and seller power, a monopolist can enter into a costly contractual relationship with a low-quality supplier with the sole intention of improving its bargaining position relative to a high-quality supplier, without ever selling the good produced by that firm.

April 16, 2013 | Permalink | Comments (0) | TrackBack (0)

Antitrust Provisions in IP Deal Documents - May 1, 2013 program held at Google (dial in number available)

Posted by D. Daniel Sokol

ABA Section of Intellectual Property Law
Antitrust Interface with Intellectual Property Committee
In cooperation with
ABA Section of Antitrust Law Intellectual Property Committee
Present
Antitrust Provisions in IP Deal Documents
May 1, 2013
1:00-2:00 pm (EDT)

In this program hosted by the ABA Section of Intellectual Property Law and ABA Section of
Antitrust Law, panelists will discuss antitrust-related provisions in transactions involving
intellectual property, including cross-licenses with non-practicing entities, patent pools, grant
backs, and the reacquisition of intellectual property.
Click the “REGISTER NOW” button to register for the dial-in program.
(http://bit.ly/11beH2d)
Dial-in information will be provided in your confirmation.

Moderator
Rosie Lipscomb, Google, Inc.

Panelists
Mark Nelson, Partner, Cleary Gottlieb Steen & Hamilton LLP
Mark Popofsky, Partner, Ropes & Gray LLP
Logan Breed, Partner, Hogan Lovells LLP

In-Person Attendance Location
Google Inc.
1600 Amphitheater Parkway, Building 43
(Benghazi Conference Room)
Mountain View, CA
To attend in person, please rsvp to
Makala Kaupalolo at
makalak@google.com.
Space is limited.

CLE
The ABA is not seeking CLE accreditation for this
program.
Questions? dorothy.grantbryant@americanbar.org

For the program pdf see the link below:

Download Antitrust Committee Program May 1, 2013 (v2)[1]

April 16, 2013 | Permalink | Comments (0) | TrackBack (0)

Development, politics, competition and bread: Lessons from South Africa

Posted by D. Daniel Sokol

Andrew Myburgh (IFC) has written on Development, politics, competition and bread: Lessons from South Africa.

April 16, 2013 | Permalink | Comments (0) | TrackBack (0)