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 10, 2015

Antitrust Arbitration and Merger Approval

Mark A. Lemley, Stanford Law School and Christopher R. Leslie, University of California, Irvine School of Law discuss Antitrust Arbitration and Merger Approval.

ABSTRACT:  In a string of recent opinions, the Supreme Court has made it harder for consumers to avoid arbitration clauses, even when businesses strategically insert provisions in them that effectively prevent consumers from being able to bring any claim in any forum. In American Express Co. v. Italian Colors Restaurant, an antitrust case, the Court held that class-action waivers embedded in mandatory arbitration clauses were enforceable even when they had the effect of making it economically irrational for the victims of antitrust violations to pursue their claims.
Courts have long considered antitrust claims to be too complex and too important to trust to private arbitrators. By the 1980s, the Supreme Court permitted federal statutory rights, including antitrust claims, to be arbitrated so long as the plaintiffs could effectively vindicate their rights in the alternative forum. In 2013, the Supreme Court in Italian Colors fundamentally weakened the Effective Vindication Doctrine when it held that arbitration clauses that precluded class actions and classwide arbitration were enforceable even when they effectively prohibited all individual plaintiffs from bringing a case.
Arbitration differs from litigation in ways that harm the interests of consumer antitrust plaintiffs. For example, arbitration limits discovery and has no meaningful appeals process. Furthermore, defendants use the terms in arbitration clauses to prevent class actions and to undercut the pro-plaintiff features of antitrust law, including mandatory treble damages, meaningful injunctive relief, recovery of attorneys’ fees, and a lengthy statute of limitations. With the Court’s undermining of the Effective Vindication Doctrine in Italian Colors, defendants’ efforts to dismantle these pro-plaintiff components of antitrust law may prove more successful in the future.
The problems associated with antitrust arbitration are magnified in concentrated markets. Supporters of enforcing arbitration clauses assume that they these contractual provisions are the result of an informed, voluntary bargain. But when a market is dominated by a single supplier or a small group of firms, consumers often find it impossible to purchase a necessary product while retaining the right to sue, especially since arbitration clauses are generally embedded in contracts of adhesion. This means that in the markets most likely to be affected by antitrust violations, consumers are least likely to be able to avoid mandatory arbitration clauses. Furthermore, when mergers result in concentrated markets, they can increase the problems explored in Part Two.
Antitrust authorities can address the problem of proliferating arbitration clauses. When evaluating mergers, officials at the Federal Trade Commission and the Antitrust Division of the Department of Justice can threaten to challenge the merger unless the merging parties agree to specified conditions, such as the divestiture of certain assets. Because those mergers that pose the greatest risk of anticompetitive effects also magnify the problems associated with mandatory arbitration clauses, antitrust officials would be wise to condition merger approval on the merging parties’ agreement to not require arbitration of antitrust claims.

April 10, 2015 | Permalink | Comments (0) | TrackBack (0)

Market-Based Solutions to Antitrust Threats — The Rejection of the Partners Settlement

Regina E. Herzlinger, Harvard Business School, Boston, Kevin A. Schulman, Duke University Medical School, Barak D. Richman and Duke University School of Law have short piece on Market-Based Solutions to Antitrust Threats — The Rejection of the Partners Settlement.

 

April 10, 2015 | Permalink | Comments (0) | TrackBack (0)

Thursday, April 9, 2015

O’Bannon v. National Collegiate Athletic Association: Why the Ninth Circuit Should Not Block the Floodgates of Change in College Athletics

Michael A. Carrier, Rutgers University School of Law - Camden and Chris Sagers, Cleveland-Marshall College of Law, Cleveland State University explain O’Bannon v. National Collegiate Athletic Association: Why the Ninth Circuit Should Not Block the Floodgates of Change in College Athletics.

ABSTRACT: In O’Bannon v. National Collegiate Athletic Ass’n, then-Chief Judge Claudia Wilken of the U.S. District Court for the Northern District of California issued a groundbreaking decision, potentially opening the floodgates for challenges to National Collegiate Athletic Association (NCAA) amateurism rules. The NCAA was finally put to a full evidentiary demonstration of its amateurism defense, and its proof was found emphatically wanting. We agree with Professor Edelman that O’Bannon could bring about significant changes, but only if the Ninth Circuit affirms. We write mainly to address the NCAA’s vigorous pending appeal and the views of certain amici, and to explain our strong support for the result at trial. Reversal of Judge Wilken’s comprehensive and thoughtful decision would thwart needed changes just as colleges are beginning to embrace them and would be mistaken as a matter of law. O’Bannon is a correct, justifiable, garden-variety rule-of-reason opinion and should be affirmed by the Ninth Circuit.

April 9, 2015 | Permalink | Comments (0) | TrackBack (0)

Antitrust Arbitration and Merger Approval

Mark A. Lemley, Stanford Law School and Christopher R. Leslie, University of California, Irvine School of Law have an interesting paper on Antitrust Arbitration and Merger Approval.

ABSTRACT: In a string of recent opinions, the Supreme Court has made it harder for consumers to avoid arbitration clauses, even when businesses strategically insert provisions in them that effectively prevent consumers from being able to bring any claim in any forum.  In American Express Co. v. Italian Colors Restaurant, an antitrust case, the Court held that class-action waivers embedded in mandatory arbitration clauses were enforceable even when they had the effect of making it economically irrational for the victims of antitrust violations to pursue their claims.

Courts have long considered antitrust claims to be too complex and too important to trust to private arbitrators. By the 1980s, the Supreme Court permitted federal statutory rights, including antitrust claims, to be arbitrated so long as the plaintiffs could effectively vindicate their rights in the alternative forum. In 2013, the Supreme Court in Italian Colors fundamentally weakened the Effective Vindication Doctrine when it held that arbitration clauses that precluded class actions and classwide arbitration were enforceable even when they effectively prohibited all individual plaintiffs from bringing a case.

Arbitration differs from litigation in ways that harm the interests of consumer antitrust plaintiffs. For example, arbitration limits discovery and has no meaningful appeals process. Furthermore, defendants use the terms in arbitration clauses to prevent class actions and to undercut the pro-plaintiff features of antitrust law, including mandatory treble damages, meaningful injunctive relief, recovery of attorneys’ fees, and a lengthy statute of limitations. With the Court’s undermining of the Effective Vindication Doctrine in Italian Colors, defendants’ efforts to dismantle these pro-plaintiff components of antitrust law may prove more successful in the future.

The problems associated with antitrust arbitration are magnified in concentrated markets. Supporters of enforcing arbitration clauses assume that they these contractual provisions are the result of an informed, voluntary bargain. But when a market is dominated by a single supplier or a small group of firms, consumers often find it impossible to purchase a necessary product while retaining the right to sue, especially since arbitration clauses are generally embedded in contracts of adhesion. This means that in the markets most likely to be affected by antitrust violations, consumers are least likely to be able to avoid mandatory arbitration clauses. Furthermore, when mergers result in concentrated markets, they can increase the problems explored in Part Two.

Antitrust authorities can address the problem of proliferating arbitration clauses.  When evaluating mergers, officials at the Federal Trade Commission and the Antitrust Division of the Department of Justice can threaten to challenge the merger unless the merging parties agree to specified conditions, such as the divestiture of certain assets. Because those mergers that pose the greatest risk of anticompetitive effects also magnify the problems associated with mandatory arbitration clauses, antitrust officials would be wise to condition merger approval on the merging parties’ agreement to not require arbitration of antitrust claims.

April 9, 2015 | Permalink | Comments (0) | TrackBack (0)

Antitrust and the Robo-Seller: Competition in the Time of Algorithms

Salil Mehra, Temple has written on Antitrust and the Robo-Seller: Competition in the Time of Algorithms.

ABSTRACT: Increasingly, firms are knitting together newly available mass data collection, Internet-driven interconnective power, and automated algorithmic selling with their traditional supply-chain and sales functions. Traditional sales functions such as competitive intelligence gathering and pricing are being delegated to software “robo-sellers.”  This Article offers the first descriptive and normative study of the implications of this shift away from humans to machines (the “robo-sellers”) for antitrust law.  This change is a critical challenge for antitrust law – both in how it is currently applied and in highlighting and exacerbating its existing weaknesses. 
First – and critically – robo-sellers will increase the risk that oligopolists will coordinate prices above the competitive level, thereby harming consumers.  The Sherman Act contains a well-known gap in its coverage under which oligopolists that achieve price coordination interdependently, without communication or facilitating practices, generally escape antitrust enforcement, even when their actions yield supracompetitive pricing that harms consumers. Because robo-sellers possess traits that will make them better than humans at achieving supracompetitive pricing without communication, all things being equal, they will increase consumer harm due to this gap.
A second problem concerns blackletter antitrust law in dealing with price coordination through communication or facilitating practices; current doctrine requires that there be an anticompetitive “agreement” for there to be a violation of the Sherman Act for price fixing.  Under standard models, even where oligopolists have independent incentives to price supracompetitively, they can often do better via an agreement; moreover, in other cases, competing firms can only achieve supracompetitive pricing by explicit collusion.  In these cases, usually analyzed as a prisoner’s dilemma in which the Nash equilibrium is to “cheat” on the cartel, an agreement is required to avoid the inferior (from the price-fixers’ perspective) outcome.  In order to find such an “agreement,” courts, government enforcers, and practitioners tend to focus on finding “intent,” efforts to sowing fear and distrust, and discovering a “meeting of the minds.”  These standard inquiries derive from a more than a century-old embedded assumption that antitrust regulates sales by human actors; they will be a poor fit in addressing robo-sellers, which will function differently and which will likely not create the same kinds of evidence that these inquiries rely on.
What can be done about the anticompetitive effects of robo-selling?  This Article assesses several possible solutions, but find that they will be quite difficult to reconcile with current antitrust law.  It conclude that, at least as a feasible second-best result, incorporating an evolving approach to robo-sellers may be a worthwhile expansion of the FTC’s ongoing regulatory program that has already begun target the competition and consumer protection aspects of consumer data collection by sellers.  For example, the FTC has already begun to consider the effects of mass data collection and algorithmic processing on consumers from the perspective of disclosure and discrimination (both price and social); efficiencies should exist in broadening the inquiry to include effects on price coordination and cartel behavior.

 

April 9, 2015 | Permalink | Comments (0) | TrackBack (0)

Information Exchange between Authorities: Enhancing Enforcement

Chris Fonteijn, Netherlands Authority for Consumers and Markets and Siun O’Keeffe, Netherlands Authority for Consumers and Markets identify Information Exchange between Authorities: Enhancing Enforcement.

ABSTRACT: The Netherlands Authority for Consumers and Markets (ACM) was created on the 1st of April 2013 following the consolidation of the Netherlands Consumer Authority (CA), the Netherlands Independent Post and Telecommunications Authority (OPTA) and the Netherlands Competition Authority (NMa). ACM is an independent organisation with the powers and obligations of the three authorities that it replaces. As a multidisciplinary authority, we are testing how we can develop innovative methods in all three areas in order to identify market failures that harm consumer welfare and find cures for those failures. For ACM, information exchange is an important market-oversight tool. This tool has developed from being a spin-off of the authority’s international contacts to a central enforcement strategy both at national and international levels.

There are different layers of information exchange between authorities: cooperation between the competition authority and other national authorities (other regulatory authorities, tax offices etc.); and cooperation between competition authorities at an international level. In this article, we set out some of the issues for information exchange between authorities from the perspective of the national competition authority. The main issues we have to deal with in the context of information exchange at ACM are those of confidentiality and due process. We also give examples of cases in which information has been exchanged between competition authorities within the EU’s European Competition Network (ECN).

April 9, 2015 | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 8, 2015

The Meaning of FRAND, Part II: Injunctions

Greg Sidak (Criterion) discusses The Meaning of FRAND, Part II: Injunctions.

ABSTRACT: Under what conditions may the holder of standard-essential patents (SEPs) seek to enjoin an infringing implementer without breaching the SEP holder’s contract with the standard-setting organization (SSO) to provide access to those SEPs on fair, reasonable, and nondiscriminatory (FRAND) terms? I show that the SEP holder’s contractual obligations still permit it to seek an injunction. A FRAND commitment requires the SEP holder to offer a license for the SEPs on FRAND terms (or otherwise to grant implementers access to the SEPs). Extending an offer containing a price within the FRAND range discharges the SEP holder’s contractual obligation. Thereafter, the SEP holder may seek to enjoin an implementer that has rejected a FRAND offer. This analysis indicates the imprudence of categorically banning injunctions for the infringement of SEPs, as some scholars have advocated and as one of the world’s most significant SSOs—the Institute of Electrical and Electronics Engineers (IEEE)—had proposed, as of January 2015, in draft amendments to its bylaws. Such a ban would invite opportunism by implementers and is unnecessary. Courts already can prevent opportunism by SEP holders by conditioning an injunction on the implementer’s actual or constructive rejection of a FRAND offer.

April 8, 2015 | Permalink | Comments (0) | TrackBack (0)

Does Accession to the European Union Foster Competition Policy? Country-level Evidence

Michael Boheim (WIFO) and Klaus S. Friesenbichler (WIFO) ask Does Accession to the European Union Foster Competition Policy? Country-level Evidence.

ABSTRACT: This paper argues that the accession to the European Union improves the quality of competition policy via the implementation of pro-competitive policies, especially antitrust and competition policies, embedded in the Community Acquis. We assess this conjecture empirically for the (former) transition economies of Central and Eastern Europe, using member countries as well as developing and developed countries in Europe and Central Asia as a control group. The data used is a macro-economic panel of 48 countries covering six 3-year periods between 1995 and 2012. We find that EU accession positively affected the quality of competition policies over and above an overall trend towards more market oriented policies. The improvement in competition policy was not reversed in a single country of the sample. The findings are robust when controlling for endogeneity issues. We also document a slow-down in policy reform efforts in the aftermath of the crisis, challenging previous literature which expects a reform enhancing effect of crisis. 

April 8, 2015 | Permalink | Comments (0) | TrackBack (0)

Is the German Retail Gas Market Competitive? A Spatial-temporal Analysis Using Quantile Regression

Alexander Kihm, Nolan Ritter, and Colin Vance ask Is the German Retail Gas Market Competitive? A Spatial-temporal Analysis Using Quantile Regression.

ABSTRACT: We explore whether non-competitive pricing prevails in Germany’s retail gasoline market by examining the influence of the crude oil price on the retail gasoline price, focusing specifically on how this influence varies according to the brand and to the degree of competition in the vicinity of the station. Our analysis identifies several factors other than cost – including the absence of nearby competitors and regional market concentration – that play a significant role in mediating the influence of the oil price on the retail gas price, suggesting price setting power among stations.

April 8, 2015 | Permalink | Comments (0) | TrackBack (0)

Mergers and Acquisitions in the German Hospital Market – Who are the Targets?

Adam Pilny asks Mergers and Acquisitions in the German Hospital Market – Who are the Targets?

ABSTRACT: Since the introduction of the DRG system in 2004, the German hospital market experienced a stream of consolidations in term! s of mergers and acquisitions, resulting in a decreasing number of hospital owners. In this study, I examine the ex-ante characteristics of hospitals prior to a merger or an acquisition occurring between 2005 and 2010 in Germany, predominantly focusing on the financial conditions of hospitals. The results reveal that hospitals with a higher probability of default and less liquid resources are more often the targets of acquisitions. On the other hand, hospitals with a lower equity-to-assets ratio exhibit a higher probability of merger. This pattern can be explained by different motives and rationales of hospital chains and potential investors.

April 8, 2015 | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 7, 2015

Patient choice and the effects of hospital market structure on mortality for AMI, hip fracture and stroke patients

Hugh Gravelle (Economics of Social and Health Care Research Unit, Centre for Health Economics, University of York, UK),  Giuseppe Moscelli (Economics of Social and Health Care Research Unit, Centre for Health Economics, University of York, UK. PhD Student, University of Tor Vegata),
Rita Santos (Economics of Social and Health Care Research Unit, Centre for Health Economics, University of York, UK), and Luigi Siciliani (Economics of Social and Health Care Research Unit, Centre for Health Economics, University of York, UK. Department of Economics and Related Studies, University of York, UK) research Patient choice and the effects of hospital market structure on mortality for AMI, hip fracture and stroke patients.

ABSTRACT: We examine (a) the effect of market structure on the level of mortality for AMI, hip fracture, and stroke between 2002/3 and 2010/11 and (b) whether this effect changed after the introduction of Choice policy in 2006 which gave patients the right to a wider choice of hospital. For AMI and hip fracture, hospitals with more rivals had higher mortality at the beginning of the period but this effect became smaller over the period. We find that the decline in the detrimental effect of market structure predated the introduction of Choice. Market structure! had no effect on stroke mortality.

April 7, 2015 | Permalink | Comments (0) | TrackBack (0)

Mergers in declining industries: puzzles from competition and industrial policies

Angelo Castaldo (Sapienza Universita di Roma) and Laura Ferrari-Bravo (Sapienza Universita  di Roma) discuss Mergers in declining industries: puzzles from competition and industrial policies.

ABSTRACT: Exit strategies referred to specific industry characteristics have been widely studied in the economic literature (Harrigan, 1980; Ghemawat et al., 1985, 1990; Lieberman, 1990; Reynolds, 1988; Fundenberg et al., 1989; Baptista et al., 2006). These studies show that exit dynamics – by setting new boundaries and changing the dynamic of sectorial competition – may reallocate activities towards more efficient outcomes. In declining industries particularly exit strategies play a crucial role in granting efficiency. When demand declines, efficiency rules call out for a shrink in production capacity. We focus on M&A as a strategy of orderly exiting from a declining industry. We argue that merger strategies in such a context could represent an efficient solution to the attrition game. However, mergers often give rise to competitive concerns. This raises the question of how to reconcile the enforcement of competition rules with the need of mergers as efficient devices for orderly exiting from declining industries. We suggest a two-step approach to merger scrutiny that, beginning from market definition from both a competition law and industrial policy perspective, attempts to solve the trade-off between fostering competition and recovering from decline, thereby reducing the possibility of committing Type I and II errors in assessing the competitive impact of mergers. 

April 7, 2015 | Permalink | Comments (0) | TrackBack (0)

Modelling Firm and Market Dynamics - A Flexible Model Reproducing Existing Stylized Facts

Thomas Brenner (Economic Geography and Location Research, Philipps-University, Marburg) and
Matthias Duschl (Economic Geography and Location Research, Philipps-University, Marburg) are Modelling Firm and Market Dynamics - A Flexible Model Reproducing Existing Stylized Facts.

ABSTRACT: This paper presents a firm and market model that is able to reproduce the empirically observed patterns on firm growth and its statistical characteristics. It goes beyond the existing firm models by reproducing all stylized facts established in the literature. Furthermore, the model is flexible so that it can be adapted to certain industries and life-cycle stages. We analyse and discuss the options that are provided by the various parameters in this sense.

April 7, 2015 | Permalink | Comments (0) | TrackBack (0)

Monday, April 6, 2015

This class-action suit against Google just collapsed. That’s a good thing

Brian Fung (Washington Post columnist of "The Switch") has a new op-ed on This class-action suit against Google just collapsed. That’s a good thing.

April 6, 2015 | Permalink | Comments (0) | TrackBack (0)

Tensions Between Antitrust and Industrial Policy

D. Daniel Sokol, University of Florida analyzes Tensions Between Antitrust and Industrial Policy.

ABSTRACT: Sound antitrust law and policy is in tension with industrial policy.  Antitrust promotes consumer welfare whereas industrial policy promotes government intervention for privileged groups or industries.  Unfortunately, industrial policy seems to be alive and well both within antitrust law and policy and within a broader competition policy worldwide.  This Article identifies how industrial policy impacts both antitrust and competition policy.  It provides examples from the United States, Europe and China as to how industrial policy has been used in antitrust.  However, this article also makes a broader claim that the overt or subtle use of industrial policy in antitrust and a broader competition policy is a global phenomenon.  The US experience teaches that industrial policy can be pushed to the margins in antitrust (and the failure to push such policy to the margins produces economic inefficiencies) and that successful competition advocacy can reduce the competitive distortions of a broader competition policy.  This article first identifies the relationship between antitrust and industrial policy.  It provides examples of industrial policy in the antitrust experiences of the United States, Europe, and China.  Second, the article explores how a lack of procedural fairness in antitrust may be abused by inefficient competitors as a way to push industrial policy goals.  Third, the article demonstrates how industrial policy hurts a broader competition policy and suggests potential competition advocacy interventions on the part of antitrust authorities to limit the anti-competitive effects of such policy.  The article concludes with the suggestion that industrial policy is in fundamental tension with promoting consumer welfare and fostering long term economic growth and should be abandoned both explicitly and implicitly from the antitrust enterprise.  Further, antitrust agencies should implement more competition advocacy interventions to stop the spread of industrial policy globally.

April 6, 2015 | Permalink | Comments (0) | TrackBack (0)

On The Social Efficiency In Monopolistic Competition Models

Igor G. Pospelov (National Research University Higher School of Economics) and Stanislav A. Radionov (National Research University Higher School of Economics) has written On The Social Efficiency In Monopolistic Competition Models.

ABSTRACT: We consider standard monopolistic competition models with aggregate consumer's preferences dened by two well-known classes of utility functions | the Kimball utility function and the variable elasticity of substitution utility function. It is known that market equilibruim is ecient only for the special case when utility function has a constant elasticity of substitution, but we nd that in both cases a special tax on rms' output may be introduced such that market equilibrium becomes ecient

April 6, 2015 | Permalink | Comments (0) | TrackBack (0)

Dynamic Voluntary Advertising under Partial Market Coverage

Yohei Tenryu (Graduate School of Economics, Osaka University) and Keita Kamei (Graduate School of Economics, Kyoto University) explore Dynamic Voluntary Advertising under Partial Market Coverage.

ABSTRACT: We consider a dynamic voluntary advertising model with a duopoly. Firms can use advertising and price as competitive tools where product quality is a given and the market is not fully covered by consumers. Advertising also plays a role as a public good. In this situation, we investigate how advertising, profits, and welfare respond to changes in consumer preference and product quality. We mainly find that a higher maximum preference value leads to increases in advertising, profits, and consumer surplus but a decrease in incumbent consumers’ utility. We further find that a technology improvement by a low-quality firm increase its profit and consumer surplus if the technology gap is re! latively large but if this is not the case, then the innovation could have different effects on firms’ profits and consumer surplus.

April 6, 2015 | Permalink | Comments (0) | TrackBack (0)

Entry and shakeout in dynamic oligopoly

Paul Hunermund, Philipp Schmidt-Dengler, and Yuya Takahashi analyze Entry and shakeout in dynamic oligopoly.

ABSTRACT: In many industries, the number of firms evolves non-monotonically over time. A phase of rapid entry is followed by an industry shakeout: a large number of firms exit within a short period. We present a simple timing game of entry and exit with an exogenous technological process governing firm efficiency. We calibrate our model to data from the post World War II penicillin industry. The equilibrium dynamics of the calibrated model closely match the patterns observed in many industries. In particular, our model generates richer and more realistic dynamics than competitive models previously analyzed. The entry phase is characterized by preemption motives while the shakeout phase mimics a war of attrition. We show that dynamic strategic incentives accelerate early entry and trigger the shakeout by comparing a Markov Perfect Equilibrium to an Open-loop Equilibrium. 

April 6, 2015 | Permalink | Comments (0) | TrackBack (0)

Best Prices: Price Discrimination and Consumer Substitution

Judith A. Chevalier and  Anil K Kashyap offer Best Prices: Price Discrimination and Consumer Substitution.

ABSTRACT: We propose a method for constructing price indices when retailers use periodic sales to price-discriminate amongst heterogeneous customers. To do so, we introduce a model in which Loyal customers buy one brand and do not strategically time purchases, while Bargain Hunters always pay the lowest price available, the "best price". We derive the ideal price index and demonstrate empirically that accounting for our best price construct substantially improves the match between conventional price indices and actual prices paid by consumers. We demonstrate that our methodology improves inflation measurement without imposing an unrealistically large burden on the data-collection agency.

April 6, 2015 | Permalink | Comments (0) | TrackBack (0)

Friday, April 3, 2015

Antitrust Snoops on the Loose

Keith Hylton, BU has an op-ed in today's Wall Street Journal on Antitrust Snoops on the Loose.

April 3, 2015 | Permalink | Comments (0) | TrackBack (0)