Thursday, May 17, 2018
Timo Klein, University of Amsterdam - Amsterdam School of Economics (ASE) and Maarten Pieter Schinkel, University of Amsterdam - Amsterdam Center for Law & Economics (ACLE) identify Cartel Stability by a Margin.
ABSTRACT: Firms may engage in collusion only if they are better off by a sufficiently wide margin. Such a cartel safety margin can cover costs of colluding and insure participants against risky aspects of it, such as unforeseeable changes in market conditions, unpredictable internal tensions, sharpened public enforcement or inestimable liability for antitrust damages. Accounting for a required margin provides new unambiguous comparative statics of variations in market characteristics on cartel stability where these are otherwise not a priori available. The margin reduces the comparative negative effect that a change in the gain from deviating following a market structure change has on cartel stability. More specifically, we find that both lower marginal cost and reduced product differentiation increase cartel stability. Implications for competition policy include that merger efficiencies may increase the risk of coordinated effects.
Wednesday, May 16, 2018
Mark A. Lemley, Stanford Law School and Timothy Simcoe, Boston University - Questrom School of Business; NBER ask How Essential are Standard-Essential Patents?
ABSTRACT: Courts, commentators, and companies have devoted enormous time and energy to the problem of standard-essential patents (SEPs) – patents that cover (or at least are claimed to cover) industry standards. With billions of dollars at stake, there has been a great deal of litigation and even more lobbying and writing about problems such as how if at all standard-setting organizations (SSOs) should limit enforcement of patent rights, whether a promise to license SEPs on fair, reasonable, and non-discriminatory (FRAND) terms is enforceable in court or in arbitration, what a FRAND royalty is, and whether a refusal to comply with a FRAND commitment violates the antitrust laws.
In this study, we explore what happens when SEPs go to court. What we found surprised us. We expected that proving infringement of a SEP would be easy – they are, after all, supposed to be essential – but that the breadth of the patents might make them invalid. In fact, the evidence shows the opposite. SEPs are more likely to be held valid than a matched set of litigated non-SEP patents, but they are significantly less likely to be infringed. Standard-essential patents, then, don’t seem to be all that essential, at least when they make it to court.
At least part of the explanation for this surprising result comes from another one of our findings: many SEPs asserted in court are asserted by non-practicing entities (NPEs), also known as patent trolls. NPEs do much worse in court, even when they assert SEPs. And the fact that they have acquired a large number of the SEPs enforced in court may bring the overall win rate down significantly.
Our results have interesting implications for the policy debates over both SEPs and NPEs. Standard-essential patents may not be so essential after all, perhaps because companies tend to err on the size of over-disclosing patents that may or may not be essential. The failure of NPEs to win cases even with what seem like they should be a strong set of patents raises interesting questions about the role of NPEs in patent law and the policy efforts to curb patent litigation abuse.
Giuseppe Colangelo and Mariateresa Maggiolino are Applying Two-Sided Markets Theory: The MasterCard and American Express Decisions.
ABSTRACT: Since the seminal papers by Rochet and Tirole, the payment card industry has represented an elected field of study for the economic features of multisided markets and their effects on both regulation and antitrust analysis. The recent judgements of the UK High Court of Justice in MasterCard and of the US Court of Appeals for the Second Circuit in American Express are particularly relevant because they are the first to concretely apply the economic theory of multisided markets to the payment card industry. In particular, given the nature of multisided markets, the coexistence of different business models, and the dualistic competitive interpretation of the conduct, courts have emphasised the need to articulate a judgement around counterfactual hypotheses. This is a way to measure the actual impact on competition, testing the realistic scenario that would occur if the investigated conduct was absent, so as to give appropriate consideration to the business model of the single platform. The same reasoning that makes us consider advantageous a flexible antitrust approach forces us to be critical of the current US and EU regulation of payment systems.
Jorge Padilla (Compass Lexecon) asks Should Profit Margins Play a More Decisive Role in Horizontal Merger Control?
ABSTRACT: In a recent speech, DG Competition’s Chief Competition Economist, Prof Tommaso Valletti explained that, while there is no evidence of increased market concentration in the five largest European countries (EU-5), profit margins have increased since 2010, reaching a historical maximum in 2016. In his view, the upward trend in profit margins ought to have implications for competition policy in general and, in particular, for merger control.
Leonard Treuren, University of Amsterdam - Amsterdam School of Economics (ASE) and Maarten Pieter Schinkel, University of Amsterdam - Amsterdam Center for Law & Economics (ACLE) ask Can Collusion Promote Sustainable Consumption and Production? Not Beneficially Beyond Duopoly. Worth downloading!
ABSTRACT: Cartels may be exempted from competition law if they sufficiently promote sustainability objectives. To qualify, the collusive agreement should not fully eliminate competition. We study how remaining and fringe competition affect incentives to produce more sustainably under semi-collusion in an n-firm extension of the duopoly model in Schinkel and Spiegel (2017). We find that more residual competition makes the policy less effective. Coordination of sustainability investments always reduces sustainability and harms consumers, both in complete and partial collusion. The parameter space in the 2-firm production cartel in which consumers benefit from increased sustainability closes for n>2, and does not reopen by maintaining fringe competition beyond 2 out of 3 firms colluding. Residual competition discourages investment incentives more than it tempers the partial cartel's restriction of output. A requirement to compensate consumers decreases sustainability investments below competitive levels.
Tuesday, May 15, 2018
ABSTRACT: In recent years, Korea has become a major battleground in prominent cases regarding the intersection between competition law and intellectual property rights (‘IPR’s). On 28 December 2016, after a yearlong deliberation following the issuance of the Examiner’s Report (equivalent of Statement of Objections in Europe), the Korea Fair Trade Commission (‘KFTC’) surprised the world by taking decisive actions against Qualcomm in its alleged abuse of IPRs, which were tougher than what the NDRC of China had imposed in terms of its breadth and implications on the mobile ecosystem.
Maria José Schmidt-Kessen writes on Selective Distribution Systems in EU Competition and EU Trademark Law: Resolving the Tension.
ABSTRACT: The biggest revolution for retail trade in the past two decades has been the discovery and establishment of the internet as business tool. The internet has become such a common sales tool, that a consumer goods manufacturer not present on the internet will lose outlet capacities, revenues and possibilities to do business at distance. Nonetheless, manufacturers of branded goods, in particular luxury goods, have observed the development of online sales with suspicion.
Itai Rabinovici ha written on The Application of EU Competition Rules in the Transport Sector.
ABSTRACT: For the transport sector, 2017 was another year under the shadow of the difficulties and consolidation of the industry. The collapse of Air Berlin, Germany’s second largest air carrier was a major event for the industry. In addition, the aviation sector saw also the collapse of Alitalia and Monarch Airlines. In the container shipping industry the year started with the transformation of the alliances’ landscape from four global alliances to three. As the year progressed three major mergers were reviewed around the world
Michal Gal, University of Haifa explores The Power of the Crowd in the Sharing Economy.
ABSTRACT: Much has been written on the ability of sharing platforms to affect market conditions. In this research we focus on another piece of the puzzle, which is often overlooked but can play a significant role in shaping market structure and conduct: the users of the platform- whether suppliers or consumers (hereinafter jointly or severally: “the crowd”). As will be shown, the power of the crowd can both positively and negatively affect social welfare. Accordingly, this paper seeks to recognize the effects of crowd power and to identify both market-based as well as regulatory solutions to increase its welfare-increasing qualities, while reducing its negative ones.
To do so, the study develops in a three stages. The first part explores the welfare effects of the sharing economy on the crowd. This serves as a basis for the second part, which focuses on the role of the crowd in shaping sharing platform markets. The third part then explores the potential role, as well as the limitations, of regulation in ensuring that crowd actions increase welfare. As will be shown, the current legal framework which regulates crowd actions might limit the realization of some of the potential positive effects of social platforms. In particular, new thinking might be needed with regard to rules regulating the use of crowd power to counteract a dominant sharing platform’s market power.
The Acquisitions of the Chinese State-Owned Enterprises Under the EU Merger Control Regime: Time for Reflection?
Alexandr Svetlicinii, University of Macau - Faculty of Law asks The Acquisitions of the Chinese State-Owned Enterprises Under the EU Merger Control Regime: Time for Reflection?
ABSTRACT: The acquisitions notified by the Chinese state-owned enterprises (SOEs) under EU merger control regime have raised a number of questions as to the suitability of the current merger control rules and standards applied by the EU Commission for the ex ante assessment of the likely impact of such transactions on competition in the EU Internal Market. The present paper provides an overview of the EU Commission’s practice to date with special focus on the concepts of “single economic unit”, “decisive influence” and “control” that have been applied by the EU Commission in the cases involving Chinese SOEs.
Monday, May 14, 2018
Pehr-Johan Norbäck, Research Institute of Industrial Economics (IFN), Lars Persson, Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR), and Joacim Tåg, Research Institute of Industrial Economics (IFN) ask Private Equity Buyouts: Anti- or Pro-Competitive?
ABSTRACT: Private equity firms have become common owners of established firms in concentrated markets. Antitrust authorities therefore intervene in mergers and acquisitions involving PE firms. In this article, we discuss the antitrust implications of an active PE market and whether there are any special characteristics of PE ownership that are important for antitrust regulation and enforcement. To gain some perspective, we approach the question from three pillars of industrial organization: (i) identifying and blocking mergers that create substantial market power; (ii) detecting and preventing predatory behavior; and (iii) detecting and preventing collusive behavior.
Bruno Jullien, University of Toulouse 1 - Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute) and Yassine Lefouili, University of Toulouse 1 - Toulouse School of Economics (TSE) discuss Horizontal Mergers and Innovation.
ABSTRACT: This paper discusses the effects of horizontal mergers on innovation. We rely on the existing academic literature and our own research work to present the various positive and negative effects of mergers on innovation. Our analysis shows that the overall impact of a merger on innovation may be either positive or negative and sheds light on the circumstances under which each of these scenarios is likely to arise. We derive a number of policy implications regarding the way innovation effects should be handled by competition authorities in merger control and highlight the differences with the analysis of price effects.
Carlo Capuano, University of Naples Federico II - Department of Economic and Statistical Sciences and Iacopo Grassi, Università Federico II examine Patent Protection and Threat of Litigation in Oligopoly.
ABSTRACT: In recent years, the increasing awarding of patents has captured the attention of scholars operating in different fields. The economic literature has studied the causes of this proliferation; we propose an entry game focusing on one of the consequences, showing how an incumbent may create a patent portfolio in order to control market entry and to collude. The incumbent fixes the level of patent protection and the threat of denunciation reduces the entrants expected profits; moreover, if the entrant deviates from collusion, the incumbent can strengthen punishment suing the competitor for patent infringement, reducing her incentive to deviate. Our analysis suggests that antitrust authorities should pay attention to the level of patent protection implemented by the incumbent and note whether the holder of a patent reacts to entry by either suing or not suing the competitor. In the model, we use completely general functional forms in analyzing the issues, and this allows us to obtain general results not depending on the assumptions about the kind of oligopolistic competition.
Jonathan Sallet has an interesting paper on Louis Brandeis: A Man for This Season.
ABSTRACT: In the early years of the 20th Century, Louis Brandeis was America’s most influential advocate for antitrust enforcement but his contributions to antitrust have been much debated ever since. Given the current, prominent discussion of the future of antitrust in these economic times, this essay proposes a five-part framework to describe Brandeis’s approach, which relies heavily on institutional roles and responsibilities: (1) Legislators creating antitrust laws should consider broad economic and social issues, including democratic values, (2) Antitrust laws should translate those broad motivations into administrable legal standards within the scope of professional obligations familiar to antitrust enforcers and the courts, (3) Legal professionals vindicate the legislature’s larger social and economic goals by relying on learnings from economics and the social sciences and applying the chosen legal standard to the facts in a determined and detailed manner, while avoiding day-to-day political considerations, (4) Sectoral regulation should be used where justified by specific industry circumstances, such as the existence of local utility monopolies or in circumstances in which normal competitive forces cannot get the job done, and (5) Competition policy, both in antitrust and sectoral regulation, is to be informed by a spirit of experimentation.
Saturday, May 12, 2018
Like kids growing up in the 1980s, I was drawn to the story of an outsider (face it, most antitrust practitioners and professors were not exactly the most popular boys and girls at school) who succeeds in the face of nearly impossible odds - Rocky IV, Iron Eagle, Sixteen Candles, Pretty in Pink, Say Anthing The Karate Kid.
Daniel LaRusso is back 34 years later in the Youtube series Cobra Kai. Surprisingly, it is actually a well done 10 episodes.
Friday, May 11, 2018
On Unknown Opportunities and Perils: Reflections on Carrier and Minniti's 'Biologics: The New Antitrust Frontier'
Thomas F. Cotter, University of Minnesota Law School offers thoughts On Unknown Opportunities and Perils: Reflections on Carrier and Minniti's 'Biologics: The New Antitrust Frontier'.
ABSTRACT: In their forthcoming article "Biologics: The New Antitrust Frontier," Michael Carrier and Carl Minniti predict what antitrust problems will arise from conduct on the part of biologic and biosimilar drug manufacturers in the near future, and how these problems will differ (in terms of frequency and severity) from the more familiar issues arising from the discovery, regulation, and marketing of small-molecule compounds. In this responsive essay I argue that, while there are certain types of cases the frequency of which in this context we can predict with a fair degree of confidence, and for which courts have more-or-less standard analytical frameworks available, precisely how various possible threats to innovation and competition will play out in the years to come remains to some degree both unknown and unknowable. The frontier beyond the frontier remains ever elusive.
Francisco Marcos, IE Law School studies Transposition of the Antitrust Damages Directive Into Spanish Law.
ABSTRACT: This paper analyses the legal measures adopted to implement Directive 2014/104/EU into Spanish law. After briefly looking at the context of private enforcement of competition law in Spain, it examines the process followed for the transposition and the issues discussed before the adoption of the Transposition Decree in May 2017. Overall, it can be affirmed that the new rules comply with the mandates of the Directive, only in a few matters there seems that there will be doubts concerning the interpretation of the new provisions. Some of the doubts may be rooted in the Directive itself (relative responsibility of co-infringers, umbrella claimants, harm to suppliers), and others in the lack of express rules in the Transposition Decree on some matters (causation, fault requirement, interests calculation), moreover it is uncertain how the new procedural tools will play out in practice as they imply a revolutionary change in our procedural rules.
Delina Agnosteva, Drexel University, Constantinos Syropoulos, LeBow College of Business, Drexel University, and Yoto Yotov, Drexel University - Department of Economics & International Business discuss Multimarket Linkages, Cartel Discipline and Trade Costs.
ABSTRACT: We build a model of tacit collusion between firms that operate in multiple markets to study the effects of trade costs. A key feature of the model is that cartel discipline is endogenous. Thus, markets that appear segmented are strategically linked via the incentive compatibility constraint. Importantly, trade costs affect cartel shipments and welfare not only directly but also indirectly through discipline. Using extensive data on international cartels, we find that trade costs exert a negative and significant effect on cartel discipline. In turn, cartel discipline has a negative and significant impact on trade flows, in line with the model.
Thursday, May 10, 2018
Estimating Market Power in Homogenous Product Markets Using a Composed Error Model: Application to the California Electricity Market
Luis Orea, Universidad de Oviedo - Facultad de Economicas and Jevgenijs Steinbuks, World Bank - Development Research Group (DECRG) are Estimating Market Power in Homogenous Product Markets Using a Composed Error Model: Application to the California Electricity Market.
ABSTRACT: This study proposes a novel econometric approach to estimating market power in homogenous product markets. We use a composed error model to estimate the stochastic part of firms' strategic pricing equation. This part is formed by two random variables: a traditional error term, which captures random shocks, and a random conduct term, which measures the degree of market power. This approach allows for the conduct parameter to vary flexibly across firms and within firms over time, and avoids ad hoc structural restrictions for identifying firms' conduct. The empirical application of our approach is based on a well‐known California wholesale electricity market data set, which has been rigorously used to study market power. Our results suggest that realization of market power varies over both time and firms, and reject the assumption of a common or time‐invariant conduct parameter.