Wednesday, December 10, 2014
Litigation in Europe after Passage of the EU Directive on Antitrust Damages Actions
Date: December 15, 2014
Time: 12:00 pm ‑ 1:30 pm EST/1800-1930 CET
Sponsors: Joint Conduct, International, and Civil Redress Committees
On 26 November 2014, the European Union adopted a long-awaited European Directive on private damages for antitrust violations. EU Member States have until 27 December 2016 to implement the Directive into national law. The Directive concludes an almost 10 year effort by the European Commission to harmonize the laws of 28 Member States -- at least regarding certain aspects of private damages actions. The incoming EU Competition Commissioner, Margaret Vestager, welcomed the Directive as “making it easier for European citizens and companies to receive effective compensation for harm caused by antitrust violations”. Since the Directive does not aim at full harmonization, what are the aspects it addresses? Which issues have been left open and what are the implications for private damages actions in Europe after implementation of the Directive?
Emanuela Canetta Luke Haasbeek
DG Competition, EU Comm'n DG Competition, EU Comm'n
Mary Lehner Kaarli Eichhorn
Freshfields Bruckhaus Deringer General Electric
D. Daniel Sokol
University of Florida Levin College of Law
Allen & Overy
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Francisco Marcos, IE Law School is bittersweet about Damages’ Claims in the Spanish Sugar Cartel.
ABSTRACT: As an example of collusive behaviour in the sugar industry, this paper looks at the Spanish sugar cartel, uncovered and sanctioned by the Spanish competition authority. It then turns into the subsequent private enforcement actions that concluded successfully last year with a €5 million award in damages by the Supreme Court. Several lessons can be extracted from the Supreme Court’s decisions that will have an impact in future private claims for damages arising from competition law violations. They clarify the relevance and legal force of public enforcement decisions for private enforcement, how damages’ calculations should be done, and how expert forensic opinions on the matter should be assessed by the courts and, finally, they rule on the availability of the passing-on defence. In all, the Spanish Supreme Court dicta from its decisions in the sugar cartel case may well open the gateway for new private claims in the future.
Yesterday the Wall Street Journal ran a story on how U.S. Tech Giants Battle Europe’s Sovereign States. The story focuses on growing protectionism in Europe. I agree and suggest that nothing will hurt European economic growth and innovation more than a number of current policies being pursued. My occassional co-author Vivek Ghosal of Georgia Tech (we have a follow up cartel paper to this one and a new empirical project on medical devices in the works) was quoted in the story.
David A. Hyman, University of Illinois College of Law and Shirley Svorny, California State University, Northridge - College of Business & Economics ask If Professions are Just 'Cartels by Another Name,' What Should We Do About it?
ABSTRACT: The state action doctrine has been a significant impediment in the campaign against anticompetitive conduct by provider-dominated state licensing boards. In Cartels by Another Name: Should Licensed Occupations Face Antitrust Scrutiny?, Professors Edlin and Haw argue that state licensing boards operate as a “massive exception” to the Sherman Act’s ban on cartels, and that the Supreme Court should use a pending case (North Carolina State Board of Dental Examiners v. FTC) to “hold boards composed of competitors to the strictest version of its test for state action immunity, regardless of how the board’s members are appointed.” They also propose the application of a modified rule of reason when deciding similar cases on the merits.
We suggest three modifications to Edlin and Haw’s proposal. These modifications should help limit occupational licensing’s anticompetitive tendencies and licensing boards’ anticompetitive behavior. First, in reviewing the decisions of licensing boards, courts should presume that states were not actively supervising the boards, absent compelling evidence to the contrary. Second, defendant-licensing boards should be required to present persuasive evidence of actual harm that their proposed licensing restrictions or restraints will prevent and should be required to show that private market and non-regulatory forces (including brand names, private certification, credentialing, and liability) are insufficient to ensure that occupations maintain a requisite level of quality. Finally, we argue that legislators should take steps to roll back existing licensing regimes.
Mitsukuni Nishida (Johns Hopkins Carey Business School) and Nathan Yang (Yale School of Management) ask Better Together? Retail Chain Performance Dynamics in Store Expansion Before and After Mergers.
ABSTRACT: We study firm performance dynamics in retail growth using a dynamic model of expansion that allow these dynamics to operate through an unobserved serially correlated process. The model is estimated with data on convenience-store chain diffusion across Japanese prefectures from 1982 to 2012, whereby an actual merger between two chains takes place in 2001. Given the presence of serial correlation and selection biases in observed revenue, we combine particle filtering methods for dynamic games with control functions in revenue regressions. The estimated structural model provides us insights about how performance dynamics evolve before and after the merger. In particular, we demonstrate that the performance dynamics for the merged entity do not improve following the merger.
Tuesday, December 9, 2014
Zheyin (Jane) Gu (University of Connecticut) and Yunchuan Liu (University of Illinois, Urbana-Champaign) have a new paper on Consumer Learning on Social Networks and Retailer Digital Platform Strategies Access.
Abstract: We model consumer social networks as information collection media and examine two major issues: first, how consumers construct product fit signals based on product feedbacks collected from their social connections to assist with their purchase decisions, and second, how a retailer can benefit from setting up a digital platform and helping consumers collect more product feedbacks on social networks. Our analysis identifies two important structure features of consumer social networks that affect the outcome of consumer social learning: social group inter-connectivity and overall social connectivity. In particular, when the consumer social network is not well-connected, characterized by low social group inter-connectivity and low overall social connectivity, with more product feedbacks collected on social networks consumers are more likely to form informative prior beliefs about which product has a good fit. In contrast, when the consumer social network is well-connected, characterized by either high social group inter-connectivity or high overall social connectivity, more product feedbacks collected on social networks are more likely to constitute uninformative product fit signals and leave consumers uncertain about which product has a good fit. Furthermore, our analysis shows that a retailer's incentive to set up a digital platform and help consumers collect more product feedbacks on social networks depends on the supplier market structure as well as the structure of consumer social networks. In particular, a big retailer that carries horizontally differentiated products offered by competing manufacturers has incentive to facilitate consumer social learning on well-connected social networks and when without retailer assistance consumers still collect product feedbacks from a good number of social connections. The big retailer's activity of facilitating consumer social learning can also enhance total channel surplus. In contrast, a small retailer that carries product(s) offered by a single manufacturer has incentive to facilitate consumer social learning only on social networks that are not well-connected and when without retailer assistance consumers only collect a small number of social feedbacks. And the total channel efficiency suffers when the small retailer withholds from facilitating consumer social learning. Our result highlights the unique motive of big retailers to embrace the digital era when internet, mobile networks, and social media have profoundly changed consumers' shopping habits as well as the unique contribution big retailers bring in channel efficiency through their efforts of facilitating consumer social learning.
Zhiqi Chen (Department of Economics, Carleton University) and Gang Li (School of Economics, Nanjing University) describe Horizontal Mergers in the Presence of Capacity Constraints.
ABSTRACT: We analyze the effects of a merger between two competitors in a Bertrand-Edgeworth model. The merger has no effect on equilibrium prices if a pure strategy equilibrium prevails both before and after the merger. Otherwise, the merger leads to higher prices. In the case where a mixed strategy equilibrium prevails before and after the merger, for example, the support of the price distributions shifts rightward after the merger and the post-merger price distribution of each firm stochastically dominates its pre-merger counterpart. The pre-merger capacity level of each firm plays a crucial role in determining the effects of the merger.
Maarten Pieter Schinkel, University of Amsterdam - Amsterdam Center for Law & Economics (ACLE); Tinbergen Institute - Tinbergen Institute Amsterdam (TIA), Lukas Toth, University of Amsterdam - Amsterdam Center for Law & Economics (ACLE) Jan Tuinstra, University of Amsterdam - Department of Quantitative Economics (KE); Tinbergen Institute examine Discretionary Authority and Prioritizing in Government Agencies.
ABSTRACT: Government agencies typically have a certain freedom to choose among different possible courses of action. This paper studies agency decision-making on priorities in a principal-agent framework with multi-tasking. The agency head (the principal) has discretion over part of the agency's budget to incentivize his staff (agents) in the pick-up of cases. The head is concerned with society's benefits from the agency's overall performance, but also with the organization's public image as formed from pursuing high-profile cases and various non-case specific activities. Based on their talent and the contracts offered by the head, staff officials choose which type of task to pursue: complex major, yet difficult to complete cases with an uncertain outcome, or basic minor and simple cases with a high probability of success. The size of the agency's discretionary budget influences not only the scale, but also the type of tasks it will engage in. Social welfare is non-monotonic and discontinuous in the agency's budget. Small changes in the budget may cause extensive restructuring from major to minor tasks, or vice versa. A budget cut can increase welfare more than too little extra budget would. For lower binding budgets, the head continues to sub-optimally incentivize work on complex tasks, when the agency should have shifted down to simpler tasks. In determining the discretionary space of the agency head, the budget-setter can limit the extraction of resources, but thereby also reduces the benefits from the head's superior information on how to incentivize the officials. Antitrust authorities serve as one illustration of policy implications for institutional design, including optimal budgeting and agency mergers.
Elyse Dorsey (Wilson Sonsini) and Jonathan Jacobson (Wilson Sonsini) have a new paper on EXCLUSIONARY CONDUCT IN ANTITRUST.
ABSTRACT:American society has a long history of encouraging competition, and a long history of abhorring monopoly. Often those two goals are complementary. But not always. What happens if a company competes so aggressively that it wipes out its competitors and gets a monopoly? Is that good or bad? The easy answer is that normal competition is fine, but unfair or predatory competition is not. But that easy answer is not particularly helpful. It is often very hard to distinguish the good from the bad. Low prices are good, right? But what if they are below cost so that rivals can’t compete? Courts and commentators have struggled hard for many decades to develop rules that separate the lawful conduct of a single firm from the unlawful. And that struggle continues today. We will trace a bit of the history of this struggle, summarize where the courts are today, and then offer a few suggestions for a path going forward.
Mattia Nardotto (University of Cologne), Tommaso Valletti (Imperial College London, University of Rome “Tor Vergata” & CEPR) and Frank Verboven (KU Leuven, Telecom ParisTech and CEPR) discuss Unbundling the incumbent: Evidence from UK broadband.
ABSTRACT: We consider the impact of a regulatory process forcing an incumbent telecom operator to make its local broadband network available to other companies (local loop unbundling, or LLU). Entrants are then able to upgrade their individual lines and offer Internet services directly to customers. Employing a very detailed dataset covering the whole of the UK, we find that, over the course of time, many entrants have begun to take advantage of unbundling. LLU entry only had a positive effect on broadband penetration in the early years, and no longer in the recent years as the market reached maturity. In contrast, LLU entry continues to have a positive impact on the quality of the service provided, as entrants differentiate their products upwards compared to the incumbent. We also assess the impact of competition from an alternative form of technology (cable) which is not subject to regulation, and what we discover is that inter-! platform competition has a positive impact on both penetration and quality.
Ethan Cohen-Cole (Econ One Research), Eleonora Patacchini (Cornell University and EIEF), and Yves Zenou (Stockholm University and IFN) explain Static and Dynamic Networks in Interbank Markets.
ABSTRACT: This paper proposes a model of network interactions in the interbank market. Our innovation is to model systemic risk in the interbank network as the propagation of incentives or strategic behavior rather than the propagation of losses after default. Transmission in our model is not based on default. Instead, we explain bank profitability based on competition incentives and the outcome of a strategic game. As competitors’ lending decisions change, banks adjust their own decisions as a result: generating a ‘transmission’ of shocks through the system. We provide a unique equilibrium characterization of a static model, and embed this model into a full dynamic model of network formation. We also determine the key bank, which is the bank that is crucial for the stability of the financial network.
Monday, December 8, 2014
The Dickson Poon School of Law, King’s College London is very proud to offer students from across the world the opportunity to participate in the Herbert Smith Freehills Competition Law Moot, the first international competition law mooting competition to be held at King's. The competition is generously sponsored by Herbert Smith Freehills, one of the world’s leading law firms.
In 2015, we will invite 12 teams to compete in a moot competition in the home of The Dickson Poon School of Law, Somerset House East Wing, London. The competition will provide an excellent opportunity for students to practise and improve advocacy skills in front of a judging panel, drawn from international competition law specialists.
|9 February 2015||Deadline for registration|
|16 February 2015||Deadline for requesting clarifications|
|2 March 2015||Publication of clarifications|
|13 April 2015||Deadline for written submissions|
|1 May 2015||Announcement of 12 finalists|
|12 – 14 June 2015||Oral round at King’s College London|
Lower Sanctions, Greater Antitrust Compliance? Cartel Conduct with Imperfect Information about Enforcement Risk
Johannes Paha, Justus Liebig University, Giessen asks Lower Sanctions, Greater Antitrust Compliance? Cartel Conduct with Imperfect Information about Enforcement Risk.
ABSTRACT: This article provides a model of two risk-neutral firms that may cooperate to achieve a goal that is potentially illegal. The model assumes enforcement risk and firms that are imperfectly informed about antitrust law enforcement. It is shown that compliance training, which educates the agents about law enforcement, may prevent hardcore cartels. Compliance training programs may also promote forms of cooperation that are beneficial for customers. The article shows that a competition authority can sometimes spur the implementation of compliance programs by imposing lower sanctions on wrongdoers.
Neil Gandal (Tel Aviv University and CEPR) and Hanna Halaburda (Bank of Canada, CESifo and INE PAN) analyze Competition in the Cryptocurrency Market.
ABSTRACT: We analyze how network effects affect competition in the nascent cryptocurrency market. We do so by examining the changes over time in exchange rate data among cryptocurrencies. Specifically, we look at two aspects: (1) competition among different currencies, and (2) competition among exchanges where those currencies are traded. Our data suggest that the winner-take-all effect is dominant early in the market. During this period, when Bitcoin becomes more valuable against the U.S. dollar, it also becomes more valuable against other cryptocurrencies. This trend is reversed in the later period. The data in the later period are consistent with the use of cryptocurrencies as financial assets (popularized by Bitcoin), and not consistent with ``winner-take-all'' dynamics.
Market Power and Collusion on Interconnection Phone Market in Tunisia: What Lessons from International Experiences
Sami DEBBICHI and Walid HICHRI describe Market Power and Collusion on Interconnection Phone Market in Tunisia: What Lessons from International Experiences.
ABSTRACT: We try in this paper to characterize the state of mobile phone market in Tunisia. Our study is based on a survey of foreign experience (Europe) in detecting collusive behavior and a comparison of the critical threshold of collusion between operators in developing countries like Tunisia. The market power is estimated based on the work of Parker Roller (1997) and the assumption of "Balanced Calling Pattern". We use then the model of Friedman (1971) to compare the critical threshold of collusion. We show that the “conduct parameter” measuring the intensity of competition is not null during the period 1993-2011. Results show also that collusion is easier on the Tunisian market that on the Algerian, Jordanian, or Moroccan one.
Patrick Sun (Columbia University) provides Quality Competition in Mobile Telecommunications: Evidence from Connecticut.
ABSTRACT: Signal quality is a significant contributor to the overall quality of wireless telephone service, which competitive analyses often overlooks. To understand the competitive impact of signal quality investment on further consolidation in this industry, I use a market research survey of choice of wireless service provider and a government database on transmission base stations in Connecticut. Dropped call rates and local coverage improve as base station density increases, so I treat base station density as an endogenous product characteristic and relate it to the local value of wireless services. I find a marginal base station contributes a median 0.15% increase in own market share and a median 0.03% decrease in rival market share. Marginal base station costs are implied to be substantial, so if these costs can be effectively reduced through network integration after a merger, the merging firms and consumers can both benefit through increased base station provision. If such integration is not possible, consumers lose due to either a loss in variety of products or reduced incentives of merged firms to produce quality. These results suggest that merger review must pay careful attention to the potential for network integration in wireless and related industries.
Sunday, December 7, 2014
Yanhao Wei (Department of Economics, University of Pennsylvania) has written on The Network Effects of Air-Travel Demand.
ABSTRACT: As demand increases, airline carriers often increase flight frequencies to meet the larger flow of passengers in their networks, which reduces passengers' schedule delays and attracts more demand. Motivated by this, I study a structural model of the U.S. airline industry accounting for possible network effects of demand compared with previous studies, the model implies higher cost estimates, which seem more consistent with the unprofitability of the industry; below-marginal-cost pricing becomes possible and appears on many routes. I also study airline mergers and find that the network effects can be the main factor underlying their profitability.
Friday, December 5, 2014
Sandro Shelegia and Chris M. Wilson offer A Utility-Based Model of Sales with Informative Advertising.
ABSTRACT: This paper presents a generalised framework to understand mixed-strategy sales behaviour with informative advertising. By introducing competition in the utility space into a clearinghouse sales model, we offer a highly tractable framework that can i) provide a novel welfare analysis of intra-personal price discrimination in sales markets, ii) characterise sales in a range of new contexts including complex market settings and situations where firms conduct sales with two-part tariffs or non-price variables such as package size, and iii) synthesise past research and highlight its key forces and assumptions.
WEBINAR: First Antitrust Decision by the Chinese Supreme People’s Court, Qihoo 360 v. Tencent Dec 16, 2014
CPI Webinar: First Antitrust Decision by the Chinese Supreme People’s Court, Qihoo 360 v. Tencent
The Chinese Supreme People’s Court issued its first antitrust judgment in Qihoo 360 v. Tencent on October16, 2014. In affirming a lower court ruling in favor of defendant Tencent, the Court addressed the question of market definition and market power in the context of dynamic platform-based businesses in which products are provided for “free.” It is one of the most influential cases in the 65-year history of the Supreme Court according to the Newspaper of the People’s Court.
CPI has gathered leading antitrust lawyers and economists to discuss the implications of the Tencent judgment for antitrust in China and for Internet-based cases in other jurisdictions.
The webinar will be held on 16 December 2014 at 12:00pm EST/17:00GMT/18:00 CET.
Professor D. Daniel Sokol will moderate a discussion with Antonio Bavasso, Dr. David S. Evans, Willard Tom, and Dr. Vanessa Yanhua Zhang. Evans and Zhang, with Global Economics Group, advised Tencent and submitted testimony to the Chinese Supreme People’s Court. Bavasso is a partner at Allen & Overy in London and Will Tom is a partner at Morgan Lewis in DC and former General Counsel of the US Federal Trade Commission. Danny Sokol teaches at University of Florida Law School and is Senior Of Counsel to Wilson Sonsini Goodrich & Rosati.
The webinar should be of interest to antitrust and IT lawyers and lawyers in other disciplines that could be exposed to issues related to Internet-based markets (IP, Media, Telecoms) and to anyone interested in the development of antitrust in China.
CPI will be distributing an English translation of the decision and other material in advance of the webinar.
To register, please email Carolyn Vallejo at firstname.lastname@example.org.
George Norman, Lynne Pepall, and Dan Richards explore Sequential Product Innovation, Competition and Patent Policy.
ABSTRACT: This paper examines the role of patent policy in a spatial model of sequential innovation. Initial entrepreneurs develop a new product market and anticipate that subsequent innovation may lead to a product line that consumers value more highly. The likelihood of sequential innovation increases with the number of initial early entrants in the market. Patent protection that encourages early entry can therefore raise the probability of both initial and subsequent innovation. We determine the optimal patent breadth as a function of key industry characteristics of both consumer taste and the new technology.