Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, June 28, 2013

Competition Policy for Modern Banks

Posted by D. Daniel Sokol

Lev Ratnovski (IMF) suggests Competition Policy for Modern Banks.

ABSTRACT: Traditional bank competition policy seeks to balance efficiency with incentives to take risk. The main tools are rules guiding entry/exit and consolidation of banks. This paper seeks to refine this view in light of recent changes to financial services provision. Modern banking is largely market-based and contestable. Consequently, banks in advanced economies today have structurally low charter values and high incentives to take risk. In such an environment, traditional policies that seek to affect the degree of competition by focusing on market structure (i.e. concentration) may have limited effect. We argue that bank competition policy should be reoriented to deal with the too-big-to-fail (TBTF) problem. It should also focus on the permissible scope of activities rather than on market structure of banks. And following a crisis, competition policy should facilitate resolution by temporarily allowing higher concentration and government control of banks.

June 28, 2013 | Permalink | Comments (0) | TrackBack (0)

Interview with Felipe Irarrazabal, Chile’s National Economic Prosecutor

Posted by D. Daniel Sokol

The Antitrust Source has an Interview with Felipe Irarrazabal, Chile’s National Economic Prosecutor.

June 28, 2013 | Permalink | Comments (0) | TrackBack (0)

Competition Policy Agendas for Industrializing Countries

Posted by D. Daniel Sokol

Oliver Budzinski, Ilmenau University of Technology; University of Southern Denmark - Department of Environmental and Business Economics and Maryam H. A. Beigi, Ilmenau University of Technology offer Competition Policy Agendas for Industrializing Countries.

ABSTRACT: The paper suggest a competition policy agenda strategy for industrializing countries, i.e. countries that do not have fully established market economies yet but already have progressed some way on the road to industrialization. It especially emphasizes that some features of advanced competition policy regimes, like the EU or U.S., are not suitable for such countries and different priorities need to be set. The paper concludes that in terms of antitrust, one size does not necessarily fit all.

June 28, 2013 | Permalink | Comments (0) | TrackBack (0)

Antitrust, Regulation and the 'New Rules' of Sports Telecasts

Posted by D. Daniel Sokol

Babette Boliek, Pepperdine University School of Law has written on Antitrust, Regulation and the 'New Rules' of Sports Telecasts.

ABSTRACT: Open almost any news source, or simply turn on the program guide of your own television, and the explosive proliferation of sports telecast is quickly evident. The amount paid to sports leagues by exhibitors has reached dizzying heights — in large part due not only to high demand but also to the unique live (unrecorded) nature of sports telecast. Because of these desirable characteristics, sports telecast contracts are central components to the economic viability and competitiveness of leagues and telecasters alike. Although these contracts channel a great deal of benefits to corporations and leagues, embedded within them are restrictions — such as the “black out” rules and exclusive distributorships. These weighty restrictions raise questions as to the ultimate effect such contracts may have on competition and overall consumer welfare. The legal mechanisms that traditionally protect competition in all industries — and consumer welfare in a specific industry — are antitrust law and regulation — this is no less true in the industries of professional sports and communications. The collision of these two industries has resulted in a labyrinth of regulation and, arguably, uneven antitrust enforcement that itself diminishes consumer choice, program diversity and competition.

Some scholars have argued that heightened regulation is necessary because antitrust is not sufficient to provide socially optimal levels of consumer protection in the face of certain joint ventures — such as sports networks. Contrary to that belief, this Article presents a novel and unique quantitative analysis of sports league antitrust jurisprudence to demonstrate empirically that antitrust is not only capable of policing joint ventures, but that joint venture review is recently revitalized by the Supreme Court’s decision in American Needle v. NFL. Based on empirical review of past case law, current antitrust exemptions and relevant regulatory policy, this Article presents several recommendations (i) to rationalize regulatory rules that currently create disparate treatment among leagues and telecasters and (ii) to clear the field for pro-consumer competition in sports telecast.

June 28, 2013 | Permalink | Comments (0) | TrackBack (0)

Thursday, June 27, 2013

Devising Loyalty Rebates that Comply with the As-Efficient-Competitor Test

Posted by D. Daniel Sokol

Hans Zenger, Charles River Associates (CRA) is Devising Loyalty Rebates that Comply with the As-Efficient-Competitor Test.

ABSTRACT: This article discusses the use of the as-efficient-competitor test in the assessment of single-product rebates under Article 102 TFEU. Section I first summarizes the practical experience with the test three years after its official introduction. Section II then outlines how firms can devise pro-competitive rebates that comply with the as-efficient-competitor test in an effective way. Section III, finally, assesses what regulators can do to ensure legal certainty under the effects-based approach toward loyalty rebates.

June 27, 2013 | Permalink | Comments (0) | TrackBack (0)

Competition in Bank-Provided Payment Services

Posted by D. Daniel Sokol

Wilko Bolt, De Nederlandsche Bank (Dutch Central Bank) and David B. Humphrey, Florida State University - Department of Finance discuss Competition in Bank-Provided Payment Services.

ABSTRACT: Banks supply payment services that underpin the smooth operation of the economy. To ensure an efficient payment system, it is important to maintain competition among payment service providers, but data available to gauge the degree of competition are quite limited. We propose and implement a frontier- based method to assess relative competition in bank-provided payment services. Billion dollar banks account for around 90 percent of assets in the U.S., and those with around $4 to $7 billion in assets turn out to be both the most and the least competitive in payment services, not the very largest banks.

June 27, 2013 | Permalink | Comments (0) | TrackBack (0)

Interview with Mark Berry, Chairman of New Zealand Commerce Commission

Posted by D. Daniel Sokol

The Antitrust Source has an Interview with Mark Berry, Chairman of New Zealand Commerce Commission.

June 27, 2013 | Permalink | Comments (0) | TrackBack (0)

Massimo Motta Appointed Chief Economist of DG Competition

Posted by D. Daniel Sokol

Esteemed economist Massimo Motta (Barcelona GSE) has been named the new chief economist of Dg Competition. Motta is a great choice who has a deep and broad understanding of competition economics. Many readers are no doubt familiar with his excellent textbook Competition Policy: Theory and Practice.

June 27, 2013 | Permalink | Comments (0) | TrackBack (0)

Facilitating Negotiation for Licensing Standard Essential Patents in the Shadow of Injunctive Relief Possibilities

Posted by D. Daniel Sokol

Haksoo Ko, Seoul National University School of Law has posted Facilitating Negotiation for Licensing Standard Essential Patents in the Shadow of Injunctive Relief Possibilities.

ABSTRACT: Apple and Samsung, two of the world’s premier technology companies, have recently been involved in heated legal disputes over certain patents and related technologies. Lawsuits were filed in many jurisdictions around the world. In Korea, Samsung filed a lawsuit against Apple, and one of the issues raised was whether an injunctive relief can be granted when a holder of standard essential patents committed to license its patents under FRAND (fair, reasonable, and non-discriminatory) terms. The answer to this question will have significant ramifications, beyond determining the result of the ongoing lawsuit, and will have a serious impact on the processes and applicable rules employed at many standard-setting organizations.

This article reviews the court decision in Korea, with a particular focus on the justifiability of granting an injunction to a holder of standard essential patents who committed to grant licenses under FRAND terms. In reviewing the court decision, the article will consider the negotiating parties’ bargaining behavior and related transaction costs, when an injunctive court relief is sought by a party. This article then proposes a new court procedure, which would ameliorate the parties’ incentives to engage in hold-up or reverse hold-up and would instead prompt and facilitate the parties’ negotiation. Under the proposed court procedure, the court would initially make an interim and provisionary decision on FRAND and would make a final and definitive decision on FRAND only at a later stage when doing so becomes necessary. This procedure would exert pressures on the parties to engage in negotiation in earnest and in good faith, without necessarily relying on the court’s direct involvement.

June 27, 2013 | Permalink | Comments (0) | TrackBack (0)

Bank Competition, Concentration, and Credit Reporting

Posted by D. Daniel Sokol

Miriam Bruhn, World Bank - Development Research Group (DECRG), Subika Farazi, World Bank - Middle East & North Africa Region; George Washington University and Martin Kanz, World Bank analyze Bank Competition, Concentration, and Credit Reporting.

ABSTRACT: This paper explores the empirical relationship between bank competition, bank concentration, and the emergence of credit reporting institutions. The authors find that countries with lower entry barriers into the banking market (that is, a greater threat of competition) are less likely to have a credit bureau, presumably because banks are less willing to share proprietary information when the threat of market entry is high. In addition, a credit bureau is significantly less likely to emerge in economies characterized by a high degree of bank concentration. The authors argue that the reason for this finding is that large banks stand to lose more monopoly rents from sharing their extensive information with smaller players. In contrast, the data show no significant relationship between bank competition or concentration and the emergence of a public credit registry, where banks' participation is mandatory. The results highlight that policies designed to promote the voluntary creation of a credit bureau need to take into account banks' incentives to extract monopoly rents from proprietary credit information.

June 27, 2013 | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 26, 2013

Google: The Unique Case of the Monopolistic Search Engine

Posted by D. Daniel Sokol

Albert A. Foer and Sandeep Vaheesan (AAI) have written Google: The Unique Case of the Monopolistic Search Engine.

ABSTRACT: In early January, the Federal Trade Commission (FTC) closed its nearly two-year investigation into Google's conduct. Unanimously, the Commissioners stated that Google's alleged favouring of its own vertical search features in search results was not an antitrust violation. They found that changes to Google's search algorithm were intended to offer more informative search results. The FTC acknowledged that modifications of Google's algorithm deprived some vertical search sites of traffic, but stated that harm to competitors is a ‘common byproduct of “competition on the merits”’. Responding to other allegations, Google agreed voluntarily to stop appropriating content from vertical search engines and allow online advertisers greater flexibility to manage concurrent ad campaigns on multiple search engines. Investigations into Google's practices continue in other jurisdictions, including the European Commission (EC) and the Korea Fair Trade Commission (KFTC). Given the high level of cooperation between these authorities in the Google matter, it seems unlikely that the pending investigations will reach significantly different results.

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

Merger Policy at the Federal Trade Commission: What Changes, What Stays the Same?

Posted by D. Daniel Sokol

Malcolm Coate (FTC) asks Merger Policy at the Federal Trade Commission: What Changes, What Stays the Same?

ABSTRACT: The Hart Scott Rodino Program, coupled with the modern Merger Guidelines, has controlled merger enforcement for the last twenty years. Economists have offered numerous commentaries, some supportive of the status quo, others suggestive of change. This paper tabulates and evaluates information from Federal Trade Commission (FTC) merger reviews. The FTC’s workload focuses on horizontal mergers; with particular interest in health care, consumer goods, and a specific group of intermediary product industries. The evidence suggests that a shift away from coordinated interaction cases occurred after the introduction of the 1992 Merger Guidelines. Since then, theoretical choices appear relatively stable. Abstracting from a large number of mergers to monopoly, studied and almost always blocked by the Agency, coordinated interaction matters generally exceed unilateral concerns, although the 2011-2012 period is an anomaly. Statistical analysis of the merger review process detects a little populism, but no evidence of partisan political influence on enforcement. Merger challenge decisions appear fact driven, with theory influencing which considerations are important, but not the weight given to the specific factors. Of particular interest are the findings of a more aggressive policy in homogeneous goods industries, with this impact offset by a finding of buyer power. Overall, it is the factual staff findings that appear to drive the merger review process.

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

Debit Card Interchange Fee Regulation: Some Assessments and Considerations

Posted by D. Daniel Sokol

Zhu Wang Federal Reserve Banks - Federal Reserve Bank of Richmond has posted a paper on Debit Card Interchange Fee Regulation: Some Assessments and Considerations.

ABSTRACT: The debit card interchange fee regulation introduced by the Durbin Amendment to the Dodd-Frank Act went into effect in October 2011. The regulation limits the maximum permissible interchange fee that a covered issuer can collect from merchants for a debit card transaction. In this article, we review the regulation's first-year impact on different players in the debit card market. We also discuss how the regulation may affect payments efficiency.

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

THE ANTITRUST IMPLICATIONS OF “PAPERLESS TICKETING” ON SECONDARY MARKETS

Posted by D. Daniel Sokol

Daniel A. Rascher (University of San Francisco) and Andrew D. Schwarz (OSKR) explain THE ANTITRUST IMPLICATIONS OF “PAPERLESS TICKETING” ON SECONDARY MARKETS.

ABSTRACT: “Paperless Ticketing” refers to a transaction where the purchaser uses her credit card to get into an event instead of having a ticket, pdf, or mobile phone scanable file. As implemented by TicketMaster, the secondary or resale market of tickets originally sold by TicketMaster must go through TicketMaster's own resale site, TicketExchange (or its wholly owned sister site, TicketsNow). Preventing other platforms like StubHub, RazorGator, and the like from being used severely limits the resale market. In an empirical study of over 1,600 tickets, some sold as “Paperless Ticketing” tickets and others sold as conventional tickets, the price in the secondary market for the “Paperless Ticketing” tickets was nearly $100 higher than comparable conventional tickets sold. In addition, the quantity of “Paperless Ticketing” tickets available and sold in the secondary market relative to comparable conventional tickets was about 10 percent. In other words, the supply of “Paperless Ticketing” tickets available for sale in the secondary market was much lower and the prices were much higher. This is consistent with the theoretical findings, and standard economics findings, of downstream attempted monopolization by an upstream supplier.

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

Tuesday, June 25, 2013

Market Definition in Two-Sided Markets: Theory and Practice

Posted by D. Daniel Sokol

Lapo Filistrucchi, Tilburg University, Department of Economics, CentER & TILEC; University of Florence, Dipartimento di Scienze Economiche, Damien Geradin, Tilburg University - Tilburg Law and Economics Center (TILEC); University of Michigan Law School; Covington & Burling, Eric Van Damme, TILEC and CentER, Tilburg University and Pauline Affeldt, E.CA Economics describe Market Definition in Two-Sided Markets: Theory and Practice.

ABSTRACT: Drawing from the economics of two-sided markets, we provide suggestions for the definition of the relevant market in cases involving two-sided platforms, such as media outlets, online intermediaries, payment cards companies and auction houses. We also discuss when a one-sided approach may be harmless and when instead it can potentially lead to a wrong decision. We then show that the current practice of market definition in two-sided markets is only in part consistent with the above suggestions. Divergence between our suggestions and practice is due to the failure to fully incorporate the lessons from the economic theory of two-sided markets, to the desire to be consistent with previous practice and to the higher data requirements and the higher complexity of empirical analysis in cases involving two-sided platforms. In particular, competition authorities have failed to recognize the crucial difference between two-sided transaction and non-transaction markets and have been misled by the traditional argument that where there is no price, there is no market.

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

Polish Competition Law

Posted by D. Daniel Sokol

Mateusz Blachucki, Polish Academy of Sciences (INP PAN) - Institute of Law Studies discusses Polish Competition Law.

ABSTRACT: The aim of this publication is to present foreign readers with the first English course on Polish competition law. The book consists of three parts. First is a monographic presentation of the Polish antimonopoly law. The considerations are not, however, limited to the antimonopoly act in force. Presentation of the current model of the competition law is preceded by the comprehensive theoretical study laying down the origins and basic definitions of contemporary Polish antimonopoly law. The second part is a selection of judicial case law in competition cases. Its role is to provide a reader with a practical insight into how the competition law is applied by the courts and what are the most important issues developed by the judiciary. The last part brings basic legal texts. It enables readers to confront the theoretical background and the case law with actual wording of relevant regulations or soft law documents. A combination of these three parts aims at giving an overview of the Polish competition law. The three parts supplement each other and are cross-referenced. Such method allows avoiding duplication of certain contents. Therefore it is suggested to study all three parts in parallel in order to get the more comprehensive view of the presented issues.

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

The Limits of Price Discrimination

Posted by D. Daniel Sokol

Dirk Bergemann, Yale University - Cowles Foundation - Department of Economics, Benjamin A. Brooks, Princeton University - Department of Economics and Stephen Morris, Princeton University - Department of Economics explore The Limits of Price Discrimination.

ABSTRACT: We analyze the welfare consequences of a monopolist having additional information about consumers' tastes, beyond the prior distribution; the additional information can be used to charge different prices to different segments of the market, i.e., carry out "third degree price discrimination." We show that the segmentation and pricing induced by the additional information can achieve every combination of consumer and producer surplus such that: (i) consumer surplus is non-negative, (ii) producer surplus is at least as high as profits under the uniform monopoly price, and (iii) total surplus does not exceed the efficient gains from trade. As well as characterizing the welfare impact of price discrimination, we examine the limits of how prices and quantities can change under price discrimination. We also examine the limits of price discrimination in richer environments with quantity discrimination and limited ability to segment the market.

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

SAA II: ABUSE OF DOMINANCE IN THE SOUTH AFRICAN SKIES

Posted by D. Daniel Sokol

Giulio Federico (DG Competition) offers his views on SAA II: ABUSE OF DOMINANCE IN THE SOUTH AFRICAN SKIES.

ABSTRACT: This article reviews an abuse of dominance decision against the incumbent domestic airline in South Africa (SAA) taken in 2010 and upheld on appeal in 2011. This case placed significant emphasis on the economic impact of the abusive conduct, and it represents a clear example of the adoption of an effects-based approach to assess exclusionary behavior by a dominant firm. As this article sets out, given the features of SAA's conduct and of the relevant market context, it is also possible to identify a coherent economic framework that can explain why SAA's rivals could not profitably match its incentive schemes and were therefore foreclosed. The conceptual issues raised by the SAA case are similar to the ones at stake in the landmark judgments on British Airways. The lessons from this case are therefore relevant to the ongoing antitrust debate on loyalty discounts.

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

Monday, June 24, 2013

ANTITRUST LAW AND THE PROMOTION OF DEMOCRACY AND ECONOMIC GROWTH

Posted by D. Daniel Sokol

Niels Petersen (Max Planck) analyzes ANTITRUST LAW AND THE PROMOTION OF DEMOCRACY AND ECONOMIC GROWTH.

ABSTRACT: There is a considerable debate in the legal literature about the purpose of antitrust institutions. Some argue that antitrust law merely serves the purpose of economic growth, while others have a broader perspective on the function of antitrust, maintaining that the prevention of economic concentration is an important means to promote democratization and democratic stability. This article seeks to test the empirical assumptions of this debate. Using panel data of 154 states from 1960 to 2005, it analyzes whether antitrust law actually has a positive effect on democracy and economic growth. The article finds that antitrust law has a positive effect on the level of GDP per capita and economic growth after ten years. However, there is no significant positive effect on the level of democracy. It is suggested that these results might be due to the current structure of existing antitrust laws, which are designed to promote economic efficiency rather than to prevent economic concentration.

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

STRATEGIC ENTRY DETERRENCE: PIONEER FOODS AND THE BREAD CARTEL

Posted by D. Daniel Sokol

Liberty Mncube, Competition Commission South Africa explores STRATEGIC ENTRY DETERRENCE: PIONEER FOODS AND THE BREAD CARTEL.

ABSTRACT: Joseph Harrington studies whether cartel members can sustain cooperation over time under the threat of free entry in an infinitely repeated game and shows that firms can deter entry by credibly threatening to meet any entry with an episode of below-cost pricing. In this article, we provide direct evidence of predation through below-cost pricing in the cartelized South African bread industry by comparing prices to average variable costs. We find evidence of episodes of predatory pricing. While the Competition Commission case was settled before adjudication by the Competition Tribunal, Pioneer Foods admitted to the strong evidence of predatory intent and that its conduct impeded small independent bakeries from expanding within the market and competing effectively as part of the settlement agreement.

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