Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, April 26, 2013

Antitrust's Rule of Reason: Only Competition Matters

Posted by D. Daniel Sokol

Greg Werden (DOJ) blasts a number of scholars with his paper Antitrust's Rule of Reason: Only Competition Matters.

ABSTRACT: The rule of reason is the standard for testing whether a restraint violates the Sherman Act. The thesis of this article is that the only issue under the rule of reason is the impact of a restraint on the competitive process; the Sherman Act does not employ a welfare standard. This thesis is developed by reviewing Supreme Court decisions articulating and explicating the rule of reason, then outlining its proper application consistent with precedent. Debates of recent decades are revisited to clarify welfare concepts and explain how the views of Robert Bork were distorted and maligned. The article also explains how promoting welfare can be the overarching goal of the Sherman Act, even though welfare considerations are not directly relevant in applying the Act. Finally, the article shows that no Sherman Act case cited by scholars as adopting or implying a welfare standard actually did so.

April 26, 2013 | Permalink | Comments (0) | TrackBack (0)

Howard Shelanski to Become Obama's New Regulatory Czar

Posted by D. Daniel Sokol

Howard Shelanski (Georgetown Law and currently FTC) has been nominated to become Obama's regulatory czar. Howard is brilliant - a serious scholar with important policy experience at both the FCC and FTC. I could not think of a more qualified pick.  Howard understands competition and hopefully will move regulation in a direction to benefit consumers.

Of course, discussions of czars remind me of this lovely scene from Fidler on the Roof:

Young Jewish Man: Rabbi, may I ask you a question?
Rabbi: Certainly, my son.
Young Jewish Man: Is there a proper blessing for the Tsar?
Rabbi: A blessing for the Tsar? Of course! May God bless and keep the Tsar... far away from us!

It will remain to be seen if Czar Howard will get such blessings from business, activist progressives, rent seeking government officials or all of the above. My  hope is that Howard is able to accomplish something akin to Australia’s National Competition Policy (NCP), which in my mind went further than any other regulatory review in the world in creating a more effective regulatory scheme to improve Australia's country competitiveness.

April 26, 2013 | Permalink | Comments (0) | TrackBack (0)

'Passing on' Defense in Antitrust Litigation: Preliminary Notes for a General Analysis

Posted by D. Daniel Sokol

Marco Bellia, LUISS Guido Carli University analyzes 'Passing on' Defense in Antitrust Litigation: Preliminary Notes for a General Analysis.

ABSTRACT: This article offers a short summary and some references on the “passing on” defense admissibility in antitrust litigation. The US, EU and some European Member States are taken into account. The aim of this working paper is to facilitate a new analysis of the topic, which seems to be “passed over” by academics.

April 26, 2013 | Permalink | Comments (0) | TrackBack (0)

A Short Treatise on Amateurism and Antitrust Law: Why the NCAA's 'No Pay' Rules Violate Section One of the Sherman Act

Posted by D. Daniel Sokol

Marc Edelman (Barry University) offers A Short Treatise on Amateurism and Antitrust Law: Why the NCAA's 'No Pay' Rules Violate Section One of the Sherman Act.

ABSTRACT: The National Collegiate Athletic Association (“NCAA”) oversees nearly every aspect of the $11 billion college sports industry. Its powers include scheduling championship events, determining eligibility rules, entering into commercial contracts, and punishing members that refuse to follow its authority. In recent years, some NCAA members have become increasingly wealthy – grossing annual revenues upwards of $100 million per year. However, the NCAA’s rules still deprive these members of the opportunity to share their wealth with student-athletes.

This article explains why the NCAA’s “no pay” rules violate Section One of the Sherman Act. Part I of this article introduces the NCAA, its Principle of Amateurism, and its traditional enforcement mechanisms. Part II provides a brief overview of Section One of the Sherman Act – the “comprehensive charter of economic liberty” in American trade. Part III provides a detailed explanation about why the NCAA ‘no pay’ rules constitute both an illegal form of wage fixing and an illegal group boycott. Part IV then explores eight lower-court decisions that incorrectly find the NCAA eligibility rules to be non-commercial and thus exempt from antitrust scrutiny. Meanwhile, Part V analyzes four additional lower-court decisions that misconstrue the NCAA eligibility rules to be pro-competitive under a Rule of Reason review. Finally, Part VI concludes that even if a court were to find that competitive balance is a reasonable basis for upholding certain “no pay” rules, such rules still should not come from the NCAA, but rather from the individual conference level.

April 26, 2013 | Permalink | Comments (0) | TrackBack (0)

Thursday, April 25, 2013

Industrial Policy and Competition Enforcement: Is There, Could There and Should There Be a Nexus?

Posted by D. Daniel Sokol

Nicolas Petit, University of Liege and Norman Neyrinck, University of Liege ask Industrial Policy and Competition Enforcement: Is There, Could There and Should There Be a Nexus?

ABSTRACT: This paper muses on whether there can be, there is, and there should exist a nexus between European Union (“EU”) competition law and industrial policy. A well-known, long lasting grievance in the history of EU competition law is indeed that the European Commission (“the Commission”) has allegedly enforced the competition rules dogmatically, and turned a blind eye on industrial policy considerations. Lately, this policy debate has revived. With the current economic debacle in the Western world, decades of free-market economic policies – including competition policies – inherited from the so-called “Washington consensus” are called into question. In contrast, thriving economic models like Brazil, China, or India where the State interferes with the market at the expense of free competition, are increasingly looked by the “old world” as a possible source of inspiration.

Those new developments justify devoting another paper to the question whether industrial policy considerations could and should inform EU competition enforcement. To address it, we follow a four steps methodology. We first solve definitional issues by describing the various possible meanings of “industrial policy” (I). Second, we follow a legalistic approach to review whether such considerations can, as a matter of positive law, play a role (II). Third, we turn to empirical analysis, to examine if there has been some industrial policy influence in the Commission’s case-law (III). Fourth, we review consequentialist arguments to assess whether industrial policy considerations should play a stronger role in EU competition enforcement (IV).

April 25, 2013 | Permalink | Comments (0) | TrackBack (0)

Blurry Vision: Parallel Imports, Medical Devices, and Competition in the European Market for Contact Lenses

Posted by D. Daniel Sokol

P. Sean Morris, University of Helsinki - Faculty of Law reports on Blurry Vision: Parallel Imports, Medical Devices, and Competition in the European Market for Contact Lenses.

ABSTRACT: Shopping for prescription contact lenses is part of a daily routine common to many consumers in major parts of the world. Consumers usually choose to buy their prescription contact lenses from either their local eye care professional or a secondary online supplier. This freedom of choice benefits consumers and enables manufacturers of prescription contact lenses to expand distribution and increase sales. This Article provides an analysis of the market for prescription contact lenses in the European Union (EU). The Article explores the branding and pricing of contact lenses and posits that consumers who wear prescription contact lenses benefit from the option to purchase contact lenses online or offline. In addition, the Article argues that the nature of parallel trade in the EU facilitates such benefits for consumers. Therefore, the main goal of the Article is to determine whether and how the sale and pricing of contact lenses in the EU affects consumers, competition, and competition law. The research found that there is a healthy dose of competition in the market for contact lenses, that European consumers prefer shopping online for contact lenses, and that eye care professionals generally direct their customers to their online stores to purchase contact lenses as opposed to selling them offline in their brick-and-mortar operations.

April 25, 2013 | Permalink | Comments (0) | TrackBack (0)

Search Costs, Demand-Side Economies and the Incentives to Merge Under Bertrand Competition

Posted by D. Daniel Sokol

Jose-Luis Moraga-Gonzalez, University of Amsterdam and Vaiva Petrikaite, University of Groningen study Search Costs, Demand-Side Economies and the Incentives to Merge Under Bertrand Competition.

ABSTRACT: We study the incentives to merge in a Bertrand competition model where firms sell differentiated products and consumers search sequentially for satisfactory deals. In the pre-merger symmetric equilibrium, consumers visit firms randomly. However, after a merger, because insiders raise their prices more than the outsiders, consumers start searching for good deals at the non-merging stores, and only when they do not find a satisfactory product there they visit the merging firms. As search costs go up, consumer traffic from the non-merging firms to the merged ones decreases and eventually mergers become unprofitable. This new merger paradox can be overcome if the merged entity chooses to stock each of its stores with all the products of the constituent firms, which generates sizable search economies. We show that such demand-side economies can confer the merging firms a prominent position in the marketplace, in which case their price may even be lower than the price of the non-merging firms. In that situation, consumers start searching for a satisfactory good at the merged entity and the firms outside the merger lose out. When search economies are sufficiently large, a merger is beneficial for consumers too, and overall welfare increases.

April 25, 2013 | Permalink | Comments (0) | TrackBack (0)

Selling to a Cartel of Retailers: A Model of Hub-and-Spoke Collusion

Posted by D. Daniel Sokol

Nicolas Sahuguet, HEC Montreal - Institute of Applied Economics and Alexis Walckiers have posted Selling to a Cartel of Retailers: A Model of Hub-and-Spoke Collusion.

ABSTRACT: This model describes the working of hub-and-spoke collusion that has been discussed recently by competition policy authorities. We develop a model of tacit collusion between a manufacturer and two retailers, competing a la Rotemberg and Saloner (1986). The best collusive equilibrium between retailers is inefficient and it is in the interest of the supplier to help retailers reach a more efficient collusive equilibrium. The hub and spoke conspiracy reduces double marginalization, but raises the ability of retailers to collude. The impact of a hub-and-spoke cartel on consumer's welfare depends on the bargaining power in the relationship. If the supplier has the bargaining power, the agreement, comparable to a vertical restraint, can be welfare improving in reducing double marginalization. When retailers have the bargaining power, the agreement is closer to an horizontal agreement in which retailers use the supplier to improve their collusive scheme, which leads to a loss of welfare. The result has important implications for competition policy and antitrust enforcement which are further developed in our companion paper Sahuguet and Walckiers (2013).

April 25, 2013 | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 24, 2013

The Antitrust-Busters With Gavels

Posted by D. Daniel Sokol

Daniel Crane (University of Michigan) and D. Daniel Sokol (University of Florida) have an op-ed on Eaton in the Wall Street Journal.  We hope that the Supreme Court takes the case.  See here.

April 24, 2013 | Permalink | Comments (0) | TrackBack (0)

R&D Competition Versus R&D Cooperation in Oligopolistic Markets with Evolving Structure

Posted by D. Daniel Sokol

Herbert Dawid, University of Bielefeld - Department of Business Administration and Economics, Peter M. Kort, Tilburg University - Department of Econometrics & Operations Research; Tilburg University - Center for Economic Research (CentER) and Michael Kopel, University of Graz R&D discuss Competition Versus R&D Cooperation in Oligopolistic Markets with Evolving Structure.

ABSTRACT: This paper considers investment behavior of duopolistic firms subject to technological progress. It is assumed that initially both firms offer a homogeneous product, but after a stochastic waiting time they are able to realize a product innovation. Production capacities of both firms are product specific. It is shown that firms anticipate a future product innovation by under-investing (if the new product is a substitute to the established product) and higher profits, and over-investing (in case of complements) and lower profits, compared to the corresponding standard capital accumulation game. This anticipation effect is stronger in the case of R&D cooperation. Furthermore, since due to R&D cooperation firms introduce the new product at the same time, this leads to intensified competition and lower firm profits right after the new product has been introduced. In addition, we show that under R&D competition the firm that innovates first, overshoots in new-product capacity buildup in order to exploit its temporary monopoly position. Taking into account all these effects, the result is that, if the new product is neither a close substitute nor a strong complement of the established product, positive synergy effects in R&D cooperation are necessary to make it more profitable for firms than R&D competition.

April 24, 2013 | Permalink | Comments (0) | TrackBack (0)

Antitrust Law as Public Interest Law

Posted by D. Daniel Sokol

Christopher R. Leslie, University of California, Irvine School of Law explains Antitrust Law as Public Interest Law.

ABSTRACT: Definitions of “public interest” abound. One could make the case for antitrust law as public interest law using political or economic arguments. For some, one’s definition of the public interest reflects one’s political viewpoint. To avoid the risk of using a loaded description of public interest, the Essay will employ a narrow conception of public interest: providing access to affordable food and medicine. With this principle as my guide, this Essay reviews some of the ways that antitrust law helps make food and medicine more accessible to the public.

Antitrust law is the law of competition. Competition in the marketplace generally improves the lives of consumers by expanding output and reducing the price of products and services, as well as by increasing quality and innovation. Monopolies and cartels distort competitive markets by reducing output in order to create artificial scarcity, which allows sellers to raise prices. As a result, some consumers will not be able to acquire the product or service at all because of the contrived shortages. Those consumers who continue to purchase the product or service are forced to pay elevated prices. Thus, all consumers are made worse off.

Antitrust law provides the legal rules for free market economies. At first glance, antitrust law may not seem like public interest law. In antitrust litigation, economists define markets using economic concepts like cross-elasticity of demand and cross-elasticity of supply; they debate issues of marginal cost versus average variable cost, and which costs are, in fact, variable. As antitrust law has come to rely more on economics, it has become less populist. Looking past the economic concepts and jargon, however, one discovers a body of law devoted to the public interest. This Essay is anecdotal by design; it is intended to give a sense of the many ways that anticompetitive behavior can distort access to food and healthcare.

April 24, 2013 | Permalink | Comments (0) | TrackBack (0)

Copyright and Competition Policy

Posted by D. Daniel Sokol

Ariel Katz (Toronto) explores Copyright and Competition Policy.

ABSTRACT: This Chapter discusses the tensions between copyright law and competition and some of the ways through which copyright law itself works to advance competition policy goals. It shows how competition policy goals and anti-monopoly measures shaped the design of copyright since the Statute of Anne, and the notion of limited exclusive rights operating within a competitive market system is crucial to copyright law’s design.

The Chapter offers a three-dimensional framework, consisting of considering incentive sufficiency, relative capacity to innovate, and transaction costs, to explain some key elements of copyright law: the limited term of copyright, limitations on subject matter, fair use, and the first-sale doctrine. It shows how these limitations on copyright can ensure that the copyright may not result in excessive static losses resulting from unconstrained market power, and how they can minimize dynamic losses by ensuring that copyright is not used to hinder future innovation.

April 24, 2013 | Permalink | Comments (0) | TrackBack (0)

What Consensus? Ideology, Politics and Elections Still Matter

Posted by D. Daniel Sokol

Steven C. Salop, Georgetown University Law Center states What Consensus? Ideology, Politics and Elections Still Matter.

ABSTRACT: This article, which was prepared for an ABA Antitrust Section Panel, discusses the role of ideology and politics in antitrust enforcement and the impact of elections in the last twenty year on enforcement and policy at the federal antitrust agencies. The article explains the differences in antitrust ideologies and their impact on policy preferences. The article then uses a database of civil non-merger complaints by the DOJ and FTC over the last three Presidential administrations to analyze changes in the number, type and other characteristics of antitrust enforcement. It also discusses change in vertical merger enforcement and other antirust policies such as amicus briefs, reports and guidelines. The article concludes that elections do matter and that the impact of elections on the DOJ and FTC has differed significantly.

April 24, 2013 | Permalink | Comments (0) | TrackBack (0)

Competition Law Remedies in Europe: Which Limits for Remedial Discretion?

Posted by D. Daniel Sokol

Ioannis Lianos (UCL) asks Competition Law Remedies in Europe: Which Limits for Remedial Discretion?

ABSTRACT: The fragmentation of EU competition law enforcement in various institutions (competition authoritires, courts) and legal provisions (Articles 101, 102 TFEU, merger control) have led to the development of ad hoc remedial action without this being backed up by a solid theory of competition law remedies. This study aims precisely to fill this gap by providing the first systematic theoretical analysis of competition law remedies in Europe, including conduct and structural remedies, voluntary and coercive remedies, in the areas of merger control and antitrust. The study challenges the optimal enforcement theory that seems to have provided so far the intellectual backbone of the remedial action of EU competition authorities, although this influence has not been exercised in a systematic and uniform way in all cases. Such theory does not provide an adequate understanding of the remedial discretion of competition authorities and consequently the necessary boundaries of such discretion. The study provides a novel analytical framework integrating both economic and legal principles, taking the view that although deterrence (and economic efficiency) constitutes an important objective of EU Competition law enforcement, this should be achieved in the context of established legal understandings of the concept of remedy. More specifically, the paper examines the impact of the economic approach on the linkage between the competition law wrong and remedies as the foundation for an economically inspired but still respectful to legal tradition concept of remedial discretion in EU Competition Law.

April 24, 2013 | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 23, 2013

Some Reflections on the Question of the Goals of EU Competition Law

Posted by D. Daniel Sokol

Ioannis Lianos, University College London - Faculty of Laws offers Some Reflections on the Question of the Goals of EU Competition Law.

ABSTRACT: The study first takes a normative perspective and examines the various goals that have been advanced by competition law literature on the objectives of EU competition law. A critical analysis of this literature shows the weaknesses of an economic welfare approach and the difficulties, as well as some normative objections, to incorporating non-welfare goals in the implementation of EU competition law. The normative perspective is then followed by an analysis of positive EU competition law arriving to the conclusion that the case law of the EU Courts is ambiguous as to the existence of a hierarchy of objectives in EU competition law and that the drafting of the Lisbon Treaty opens the door to a more holistic competition law, in congruent co-existence with the other Treaty provisions and policies instituted by the EU Treaties. The final part criticizes the literature on the goals of EU competition law for its monotonous emphasis on goals. I argue that the choice of a general objective as an enforcement criterion tells us little about whether any particular institution, for example the adjudicative process, should be charged with implementing that criterion. Comparative institutional analysis emphasizes the connections between issues of institutional choice and goals. The question of goals should follow and not precede that of institutional choice. Institutional choice should, however, be comparative and not proceed to choosing an institution without a proper analysis of the weaknesses of the alternative institutions on offer. The conceptualization of the role of courts, and other institutions in a holistic competition law, using comparative institutional analysis, is one of the major challenges faced by EU competition law, and new competition law regimes, in the future.

April 23, 2013 | Permalink | Comments (0) | TrackBack (0)

UPP Merger Screens: Incorporating Efficiencies and Feedback Effects into the Value of Diverted Sales

Posted by D. Daniel Sokol

Bertram Neurohr, Compass Lexecon addresses UPP Merger Screens: Incorporating Efficiencies and Feedback Effects into the Value of Diverted Sales.

ABSTRACT: This paper extends the conventional UPP merger screen (i) to account for merger-specific marginal cost efficiencies for both merging firms, and (ii) to account for feedback effects between the merging firms. What emerges is a test that is algebraically equivalent to the test developed by Werden (1996), and yet as intuitive and transparent as UPP. Given the extremely widespread use of UPP in recent years, one of the objectives of this paper is to encourage the use of a more accurate test by fully illuminating its underlying economic logic. To this end this paper shows that accounting for additional effects does not lead to a significant increase in complexity while at the same time having a profound impact on the explanatory power of the merger screen. This follows from the fact that the value of diverted sales naturally depends on both efficiencies and feedback. Besides making the increased accuracy of Werden’s test accessible to policy makers in the form of a more intuitive test, this paper brings closure to the debates surrounding the roles of efficiencies and feedback effects in UPP. It is shown that the proposed test is difficult to improve upon within the class of local tests, which do not require assumptions about the shape of the demand curve. The increased logical consistency of the test is exploited to illustrate its close connection to price changes using a linear demand example.

April 23, 2013 | Permalink | Comments (0) | TrackBack (0)

Economics in state aid – essential or nice-to-have? Wednesday 8 May 2013

Posted by D. Daniel Sokol

UK State Aid Law Association invites you to: Economics in state aid – essential or nice-to-have? Wednesday 8 May 2013

Speakers – Vincent Verouden, CET, DG Comp; James Kavanagh, Oxera; and Carsten Grave, Linklaters

Chair – Luis Correia da Silva, Oxera

Registration and drinks: 6.00 pm

Start: 6.30 pm

Finish and drinks: 7.30 pm

The discussion

"Most of the analysis in the practice of European state aid control is not firmly rooted in economic principles"

(The Handbook of Antitrust Economics, 2007).

At a time when state aid control is on the threshold of 'modernisation', this UK SALA seminar will explore the present and future role of economics in state aid. Why has economics in state aid been so far behind mergers and antitrust? What problems has this caused? Does economics have a growing role in state aid assessment, and what practical implications does this have for cases today and looking forward?

Eminent speakers from the Chief Economist Team and private practice will give their views, followed by an open discussion with the audience.

In this session we will examine:

Modernisation expand the role of economics? (Vincent Verouden)

What economic evidence is being submitted in state cases? How can state aid move in the direction of mergers/antitrust in terms of economic rigour? (James Kavanagh)

 

Is economics a “one trick pony” in state aid cases, only used for determining the existence of aid? Or is there more room for an effects-based approach? (Carsten Grave)

UKSALA is a new association of lawyers, academics, students, economists and others with an interest in State aid law. Its President is Judge Christopher Vajda, judge of the Court of Justice of the EU.

UKSALA promotes education and knowledge in State aid law, by organising speaker events, preparing papers on State aid topics, engaging with UK and EU institutions responsible for State aid issues as well as maintaining a website with materials useful to State aid practitioners. For details, and free membership, please visit www.uksala.org.

Please RSVP to the following email address:

MarketingCommunicationsUK@linklaters.com

April 23, 2013 | Permalink | Comments (0) | TrackBack (0)

The Failure of Corporate Governance Standards and Antitrust Compliance

Posted by D. Daniel Sokol

Jesse W. Markham Jr., University of San Francisco School of Law discusses The Failure of Corporate Governance Standards and Antitrust Compliance.

ABSTRACT: This article explores the interplay between corporate governance law and antitrust law, and concludes that fiduciary standards should be strengthened. Part I explains the need for powerful incentives to comply with antitrust laws, given the economic rewards from violations. Part II explores recent trends in antitrust law enforcement to show that violations continue more or less unabated despite major improvements in detection and prosecution of violations. Part III argues why monetary sanctions imposed on corporations should be abandoned as the primary enforcement tool, given that they merely place economic burdens on shareholders who are powerless to intervene ex ante, or even later, to prevent or rectify violations. Part IV argues that fiduciary duty law fails to provide incentives to comply with antitrust law, and that whatever weak incentives may residually exist are inadequate in the face of more powerful economic incentives to violate the law. Finally, Part V argues for the imposition of criminal and civil sanctions on boards of directors and senior managers who fail implement take strenuous and robust compliance programs. It is urged that fiduciary duty law needs reform in order to place responsibility for violations on those who have the power to prevent them; and the criminal sanctions for knowing or reckless board failures is both necessary and supported by workable precedents in other areas of vicarious liability law.

April 23, 2013 | Permalink | Comments (0) | TrackBack (0)

Methods for Setting Fines for Cartels in Russia and the Deterrence Effect as Compared to the United States and the European Union

Posted by D. Daniel Sokol

Alexander Egorushkin (New York University) suggests Methods for Setting Fines for Cartels in Russia and the Deterrence Effect as Compared to the United States and the European Union.

ABSTRACT: Over the last 10-20 years, the regulation of fines for antitrust violations has been amended several times in the United States and the European Union, significantly increasing the amount of imposed fines. Within the same time period, antitrust regulation and policy have spread across the globe and, as an enforcement tool, antitrust fines have also been introduced in many jurisdictions. Russia is not an exception; in 2006 the new Russian Competition Law was enacted and in 2007 turnover-based fines for antitrust violations were introduced.

Combating cartels is one of the main motivations for further developing antitrust policy, as collusion among competitors is one of the most egregious antitrust violations. Currently we are seeing antitrust authorities all over the world impose huge fines for cartels. In 2008, Saint Gobain was fined EUR 896 million by the European Commission for participation in a car glass cartel. The U.S. Department of Justice conducted a "vitamin investigation," which resulted in a $500 million fine imposed on F. Hoffmann-La Roche Ltd, a major participant in the vitamin cartel. The largest fine for a cartel agreement in Russia was imposed in 2011 on JSC United Trading Company, a leading chemicals trader, for participation in the caustic soda cartel in the amount of RUB 912,033,950 (approximately $30 million).

At first, the amount of these fines seems incredible and one can conclude that they are sufficient to deter any potential cartelists. However, the monetary size of a fine alone cannot be an objective indicator of whether or not such fine deters competitors from entering into cartel agreements and, therefore, is the optimal sanction for a cartel. The mechanisms for calculating fines and enforcement policy also play significant roles in the assessment of deterrence effect of fines.

This article focuses on analyzing the deterrence effect of the Russian fining system based on theoretical and practical approaches used in the United States and the European Union. The antitrust fines in the United States and the European Union, and comparison of their deterrence effect have been widely discussed, while there have been almost no studies on Russian anti-cartel fines and their deterrence effect.

April 23, 2013 | Permalink | Comments (0) | TrackBack (0)

Competition and Unconscionability

Posted by D. Daniel Sokol

Ezra Friedman, Northwestern University - School of Law explores Competition and Unconscionability.

ABSTRACT: Conventional legal doctrine holds that courts should be more willing to find unconscionability in contracts when either one party has monopoly power or the other party was not given a choice of contract terms. This paper suggests that this doctrine is misguided on both points. I argue that the unconscionability doctrine should be used primarily to protect unsophisticated customers from exploitation, and show that when a seller has significant market power and offers one contract to all customers, fear of alienating sophisticated customers can discourage the seller from using inefficient contracts to exploit the unsophisticated. In contrast, in a more competitive industry, sellers may actually lose money on the sophisticated customers, and be willing to sacrifice sophisticated customers in order to more fully exploit the unsophisticated. Likewise, when a monopolist offers a choice of contracts, it is more attractive for it to exploit the unsophisticated while offering an efficient contract to the sophisticated. This paper presents a formal model showing that exploitation tends to increase with competition. Although competition leads to more inefficient exploitation, it also leads to lower prices, and the welfare effects on the unsophisticated are ambiguous.

April 23, 2013 | Permalink | Comments (0) | TrackBack (0)