Wednesday, March 15, 2017
Daniel Hosken, Nathan Miller and Matthew Weinberg ask Ex Post Merger Evaluation: How Does it Help Ex Ante?
ABSTRACT: Economists have long understood that mergers can diminish competition. Mergers in concentrated markets can facilitate either tacit or explicit collusion by removing a competitor. The merger of competing firms selling differentiated products also can create a unilateral incentive to increase price. This happens when some of the sales that would have been lost as the result of a price increase by the acquiring firm pre-merger are now recaptured by the acquired firm post-merger. While these possibilities provide an economic rationale for merger enforcement, mergers may occur for many other reasons that could improve how markets function—they may reduce firms’ costs or improve corporate governance by disciplining bad management.
Cento Veljanovski, Case Associates; Institute of Economic Affairs discusses The Law and Economics of Pass-On in Price Fixing Cases.
ABSTRACT: Sainsbury’s v. MasterCard establishes the pass-on “defence” in English/UK law. The Competition Appeal Tribunal set out a two-part test which it erroneously distinguished from the economists’ notion of pass-on. It then went on the develop key elements of legal test for pass-on in price fixing cases. This article critically assesses the Tribunal’s judgment within a law and economics framework. It provides a rounded interpretation of pass-on as both a defence and offence, the different evidentiary standards and principles used, and the potential for inconsistency which could see defendants liable to claims more than the overcharges.
Tuesday, March 14, 2017
Daniel L. Rubinfeld, University of California at Berkeley - School of Law; National Bureau of Economic Research (NBER); NYU Law School IP offers Privateering in the Markets for Desktop and Mobile Operating Systems.
ABSTRACT: Utilizing a privateering competitive strategy, firms sponsor the assertion of IP claims by third parties (patent assertion entities and others), with the ultimate objective the raising of rival competitors’ costs. This paper tells the privateering story with respect to both desktop and mobile operating systems competition. It begins with Microsoft’s funding of litigation against Linux – a threat to Microsoft’s desktop operating system monopoly and continues to a analysis of recent competition in the smartphone space. The paper raises potential competitive concerns and related antitrust and IP enforcement issues.
Serge Moresi, Charles River Associates (CRA), Steven C. Salop, Georgetown University Law Center, and John Woodbury, Charles River Associates (CRA) describe Market Definition.
ABSTRACT: We explain the “hypothetical monopolist test” that has become the standard methodology for identifying relevant antitrust markets in merger cases, and discuss two approaches to implementing the test. We then focus on the implementation of the test when firms offer multiple products or services, either inside or outside the candidate market, and discuss the “hypothetical cartel test” introduced in the 2010 U.S. Merger Guidelines.
Micael Castanheira, Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Centre for Economic Policy Research (CEPR), Maria Angeles de Frutos, Universidad Carlos III de Madrid - Department of Economics, Carmine Ornaghi, University of Southampton - Division of Economics, and Georges Siotis, Universidad Carlos III de Madrid - Department of Economics; Centre for Economic Policy Research (CEPR) offer The Unexpected Consequences of Asymmetric Competition. An Application to Big Pharma.
ABSTRACT: This paper shows that a pro-competitive shock leading to a steep price drop in one market segment may benefit substitute products. Consumers move away from the cheaper product and demand for the substitutes increases, possibly leading to a drop in consumer surplus. The channel leading to this outcome is non-price competition: the competitive shock on thefirst set of products decreases the firms' ability to invest in promotion, which cripples their ability to lure consumers. To assess the empirical relevance of these findings, we study the effects of generic entry into the pharmaceutical industry by exploiting a large product-level dataset for the US covering the period 1994Q1 to 2003Q4. We find strong empirical support for the model's theoretical predictions. Our estimates rationalize a surprising finding, namely that a molecule that loses patent protection (the originator drug plus its generic competitors) typically experiences a drop in the quantity market share-despite being sold at a fraction of the original price.
Richard Gilbert, University of California, Berkeley analyzes Collective Rights Organizations: A Guide to Benefits, Costs and Antitrust Safeguards.
ABSTRACT: Collective rights organizations (CROs) are patent pools, copyright collectives and cross-licensing arrangements that coordinate the licensing of intellectual property rights. CROs can have efficiency benefits by reducing transaction costs, eliminating royalty stacking and resolving conflicting claims by rights owners. However, CROs also can have potential antitrust risks by raising prices, excluding competition for technology rights or downstream products, shielding weak patents and reducing incentives for innovation. The availability of independent licensing mitigates but does not eliminate the risk of anticompetitive practices by a collective rights organization. Antitrust enforcers should be vigilant about collective rights organizations that may harm competition while also respecting the large benefits that these institutions can create for consumers.
Monday, March 13, 2017
John Newman, U. Memphis provides an analysis of The Antitrust Jurisprudence of Neil Gorsuch.
ABSTRACT: In January 2017, President Donald Trump nominated Judge Neil M. Gorsuch to serve on the U.S. Supreme Court. Like Justice Stevens before him, Gorsuch’s primary area of expertise is antitrust law. Like Stevens, Gorsuch both practiced and taught in the area before joining the bench. As a Tenth Circuit judge, Gorsuch penned multiple substantive antitrust opinions.
Given Gorsuch’s unique antitrust expertise, examination of those opinions can shed unique light on his judicial proclivities. This essay provides the first in-depth prescriptive and descriptive analysis of Gorsuch’s antitrust jurisprudence. While it reveals (perhaps unsurprisingly) a great deal of sophistication vis-à-vis antitrust doctrine, it also identifies several areas for improvement.
This essay explains that as a Tenth Circuit judge, Gorsuch effectively expanded upon — even rewrote — existing precedent, including Justice Scalia’s memorable opinion for the majority in Trinko. For normative force, Gorsuch’s antitrust jurisprudence at times rests upon logical fallacies and an unduly one-sided error-cost framework. This essay critiques that reasoning. In response, it offers prescriptive suggestions for jurists deciding future antitrust cases, with an eye toward producing a more transparent, coherent, efficient, and welfare-maximizing body of antitrust law.
Thomas Buettner, Giulio Federico Chief Economist Team, DG Competition, European Commission; Barcelona Graduate School of Economics (Barcelona GSE), and Szabolcs Lorincz European Commission, DG Competition, Chief Economist's Team explain The Use of Quantitative Economic Techniques in EU Merger Control.
ABSTRACT: The European Commission's Directorate General for Competition often relies on quantitative economic analysis in its review of complex mergers. This analysis is typically developed during in-depth investigations (so-called Phase II reviews). There is a range of economic techniques that can be applied to the competitive assessment of mergers. The choice of the relevant economic methodology depends on the features of the market at hand, on the key questions raised by the merger, and on the availability of suitable data. Quantitative economic methods applied by the Commission to the assessment of mergers are often one of two broad types: merger simulation techniques and direct estimation methods. Merger simulations seek to approximate the effects of a merger on the main competitive variable of interest (typically price) through an internally coherent assumed model of competition in the industry which takes account of important observed or measured market features (such as substitution patterns and margins).
Direct estimation methods, on the other hand, seek to study the impact of past events in the markets at hand, using historical data. For example, direct estimation techniques can be used to measure the impact of past entry events (typically involving one or both of the merging parties) or past mergers. The insights from the direct estimation of past competitive events’ impact can then be used to make inferences on the possible effects of the merger at hand.
In this article we review the Commission’s recent application of these two families of quantitative economic methods in merger control.
Thibault Schrepel, University of Paris-Saclay offers A New Structured Rule of Reason Approach for High-Tech Markets.
ABSTRACT: Applying the per se illegality doctrine for years has proven to be a mistake. The challenge is now to avoid committing the same error by applying per se legality for practices related to the New Economy—notably predatory innovation. This Article then advocates for eliminating per se legality as it relates to innovation issues that stem from ideologies rather than particular facts.
Avoiding general per se rules does not mean, however, that we should apply a general rule of reason. Frank H. Easterbrook’s findings demonstrate how filters can create an efficient error-cost framework, but his findings are not well suited for the practices related to the New Economy. This Article proposes implementing a newly structured rule of reason tailored for innovation issues and based on three filters that will suit contemporary antitrust law issues and would considerably improve antitrust law and economic analysis in the long run, while also avoiding false positives.
Martin Watzinger, Ludwig Maximilian University of Munich, Thomas A. Fackler, Ludwig Maximilian University of Munich, Markus Nagler, Ludwig Maximilian University of Munich and Monika Schnitzer, University of Munich - Department of Economics; Centre for Economic Policy Research (CEPR) have a new paper on How Antitrust Enforcement Can Spur Innovation: Bell Labs and the 1956 Consent Decree.
ABSTRACT: We study the 1956 consent decree against the Bell System to investigate whether patents held by a dominant firm are harmful for innovation and if so, whether compulsory licensing can provide an effective remedy. The consent decree settled an antitrust lawsuit that charged Bell with having foreclosed the market for telecommunications equipment. The terms of the decree allowed Bell to remain a vertically integrated monopolist in the telecommunications industry, but as a remedy, Bell had to license all its existing patents royalty-free. Thus, the path-breaking technologies developed by the Bell Laboratories became freely available to all US companies. We show that in the first five years compulsory licensing increased follow-on innovation building on Bell patents by 17%. This effect is driven mainly by young and small companies. Yet, innovation increased only outside the telecommunications equipment industry. The lack of a positive innovation effect in the telecommunications industry suggests that market foreclosure impedes innovation and that compulsory licensing without structural remedies is ineffective in ending it. The increase of follow-on innovation by small and young companies is in line with the hypothesis that patents held by a dominant firm act as a barrier to entry for start-ups. We show that the removal of this barrier increased long-run U.S. innovation, corroborating historical accounts.
Friday, March 10, 2017
Antitrust Law Students:
Submit now to the NYSBA Section of Antitrust Law
Annual Law Student Writing Competition
$5,000 cash prize for the winning paper
How to Enter:
1.) Eligible papers must be written by a currently-
enrolled or graduating student at a New York State
Law School or by a New York State resident at any
ABA-accredited law school outside of New York
2.) Eligible papers include notes, comments and
articles and should generally be 20-30 pages in
length, with footnotes. In no event may papers
exceed 50 pages, with footnotes.
3.) Eligible papers may address any topic of
general interest to the to antitrust law community,
including topics relating to civil and criminal
antitrust law, competition policy, consumer
protection and international competition law.
4.) Jointly prepared papers are not eligible.
5.) Go to the Antitrust Section on the NYSBA website
and click on the "Young Lawyers and Law
Students" section and download an Entry Form.
Submit an electronic copy of the paper, along with a completed Entry Form, by April 30, 2017 to:
Professor Edward D. Cavanagh
St. John’s University School of Law
8000 Utopia Parkway
Queens, NY 11439
Winners and Awards:
The winner will be announced in July 2017. The first place winner will receive a check for $5,000.
If you have questions, contact Prof. Edward D. Cavanagh at 718 990-6621 or at firstname.lastname@example.org.
Log on at www.nysba.org/antitrust
Go to 'Student Writing Competition'
Norman Siebrasse, University of New Brunswick - Fredericton - Faculty of Law provides Holdup, Holdout and Royalty Stacking: A Review of the Literature.
ABSTRACT: This article provides a critical review of the theoretical and empirical literature on holdup, holdout, and royalty stacking, as they relate to remedies for patent infringement.
Ajinkya Mahesh Tulpule, Financial Conduct Authority describes Innovation in EU Merger Review.
ABSTRACT: The European Commission has recently focused its attention on the effect of mergers on innovation. The Dow/DuPont, Halliburton/Baker Hughes and Bayer/Monsanto transactions are only some examples where this effect has been a key consideration in the Commission’s analysis. These cases show that a new factor has indeed emerged in the EU merger review process, and from the looks of it, it’s here to stay.
Dariusz Aziewicz, University of Warsaw asks Resale Price Maintenance in Poland - Further Steps to its Liberalization or Stuck in a Status Quo?
ABSTRACT: Due to the recognition of their positive market effects, the evolving approach to minimum or fixed resale price maintenance (RPM) creates, in many countries, the requirement of analyzing their true economic outcomes. In the light of newest judgments delivered by the Polish Supreme Court, the purpose of this article is to analyze if it is still justified to qualify RPM as a multilateral practice that restricts competition ‘by object’ under Polish law.
Thursday, March 9, 2017
Laurent Gobillon, National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); National Institute of Demographic Studies (INED) and Carine Milcent , CNRS analyze Competition and Hospital Quality: Evidence from a French Natural Experiment.
ABSTRACT: We evaluate the effect of a pro-competition reform gradually introduced in France over the 2004-2008 period on hospital quality measured with the mortality of heart-attack patients. Our analysis distinguishes between hospitals depending on their status: public (university or non-teaching), non-profit or for-profit. These hospitals differ in their degree of managerial and financial autonomy as well as their reimbursement systems and incentives for competition before the reform, but they are all under a DRG-based payment system after the reform. For each hospital status, we assess the benefits of local competition in terms of decrease in mortality after the reform. We estimate a duration model for mortality stratified at the hospital level to take into account hospital unobserved heterogeneity and censorship in the duration of stays in a flexible way. Estimations are conducted using an exhaustive dataset at the patient level over the 1999-2011 period. We find that non-profit hospitals, which have managerial autonomy and no incentive for competition before the reform, enjoyed larger declines in mortality in places where there is greater competition than in less competitive markets.
Andre Veiga, University of Oxford - Nuffield College, E. Glen Weyl, Microsoft Research New York City; Yale University and Alexander White, Tsinghua University - School of Economics & Management have a paper on Multidimensional Platform Design.
ABSTRACT: Successful platforms attract not just many users, but also those of the right kind. "The right kind of user" is one who can either be directly monetized or who differentially attracts other valuable users. Bonacich centrality on the network of user sorting with direct value of monetization captures this feedback loop and thus characterizes the value of user characteristics. We use this value to determine optimal steady-state platform design and reliable means for platforms to reach such a steady state. We apply these results respectively to explain the dynamic growth strategy of social networks and urban development policies of cities.
Sumit Agarwal, Georgetown University - Department of Finance, Changcheng Song, National University of Singapore (NUS), and Vincent W. Yao, Georgia State University - J. Mack Robinson College of Business examine Banking Competition and Shrouded Attributes: Evidence from the US Mortgage Market.
ABSTRACT: We document that increased competition leads banks to reduce initial rates offered on adjustable-rate mortgages (ARMs) to attract borrowers but increase interest rates after the rate reset and thereby exploit consumer inattention in pricing terms. Consistent with theoretical predictions, we find that banks shroud more with naïve borrowers or less financially sophisticated borrowers, who are more subject to behavioral bias. Although competition reduces firm profits and benefits consumers due to price reduction, the effect is small, since firms respond to competition by increasing add-on prices and loans have lower default rates and delayed prepayments since deregulation.