Friday, July 28, 2017
The "Better Deal" Makes Competition Policy a National Priority — AAI Offers An Actionable Agenda Moving Forward
From the press release:
With the announcement of the "Better Deal," the Democrats in Congress made competition policy a national priority. In recent work, the AAI has articulated concrete, actionable steps to effectively promote competition in the U.S. economy. In September of 2016, the AAI issued its National Competition Policy Statement, which provides detailed priorities for an antitrust enforcement agenda moving forward. It explains a variety of enforcement and policy responses to growing concentration, increasing inequality, and slower rates of start-ups that antitrust scholars, enforcers, and policymakers have identified over the last several years. The AAI also highlights the many tools in the current antitrust “toolkit” for how enforcement can tackle inequality. In a recent op-ed, AAI President Diana Moss outlines what antitrust has done and should do to help workers.
Lars Wiethaus and Simon Chisholm discuss The Commission’s e-commerce sector inquiry – Time to change presumptions on vertical restraints?
ABSTRACT: In May 2017, the European Commission published the final report of its e-commerce sector inquiry. In this article, published in Competition Law and Policy Debate, Lars Wiethaus and Simon Chisholm review the findings relating to e-commerce in goods and, from an economic perspective, assess whether the motivations of firms to employ vertical restraints support possible pro-competitive or anti-competitive interpretations. For the full article, click the link below.
Damages for Delay: The EU Held Liable for Harm Caused by ‘Unjustified Inactivity’ in General Court Proceedings
ABSTRACT: In a series of recent judgements the General Court ruled on the non-contractual liability of the Court of Justice of the European Union (‘CJEU’). In three of those cases the General Court held the CJEU liable for damages caused by delayed proceedings and awarded the applicants compensation for material and immaterial damages. While the non-contractual liability of the institutions of the European Union is a well-established principle of EU law, this was the first time this principle was applied to the CJEU itself.
Thursday, July 27, 2017
Penalizing on the Basis of the Severity of the Offence: A Sophisticated Revenue-Based Cartel Penalty
Yannis Katsoulacos, Athens University of Economics and Business, Evgenia Motchenkova, VU University Amsterdam - Department of Economics; TILEC, and David Ulph, University of St. Andrews - School of Economics and Finance are Penalizing on the Basis of the Severity of the Offence: A Sophisticated Revenue-Based Cartel Penalty.
ABSTRACT: In Katsoulacos, Motchenkova and Ulph (2015) we examined the welfare properties of a number of monetary penalty regimes for tackling cartels, including revenue-based penalties (the most widely used regime), illegal gains-based penalties, and overcharge-based penalties. We showed that the latter regime welfare-dominates the others. However it is subject to criticism on the grounds of legal uncertainty and high implementation costs. In this paper we focus on analysing an alternative regime: a sophisticated revenue-based penalty regime in which the penalty base is the revenue of the cartel but the penalty rate depends on (and increases with) the cartel overcharge rate. Thus, in contrast to the currently employed simple revenue-based regime, the proposed regime penalises cartels taking also into account the severity of their offence in terms of the height of their overcharge. We show that this hybrid regime can effectively replicate the desirable welfare properties of an overcharge-based penalty structure while having very low levels of legal uncertainty and implementation costs.
Wyatt J. Brooks (University of Notre Dame) ; Joseph Kaboski (University of Notre Dame) ; and Yao Amber Li (Hong Kong University of Science and Technology) address Growth Policy, Agglomeration and (the Lack of) Competition.
ABSTRACT: Industrial clusters are promoted by policy and generally viewed as good for growth and development, but both clusters and policies may also enable non- competitive behavior. This paper studies the presence of non-competitive pricing in geographic industrial clusters. We develop, validate, and apply a novel test for collusive behavior. We derive the test from the solution to a partial cartel of perfectly colluding firms in an industry. Outside of a cartel, a firm’s markup depends on its market share, but in the cartel, markups across firms converge and depend instead on the total market share of the cartel. Empirically, we validate the test using plants with common owners, and then test for collusion using data from Chinese manufacturing firms (1999-2009). We find strong evidence for non-competitive pricing within a subset of industrial clusters, and we find the level of non-competitive pricing is about four times higher in Chinese special economic zones than outside those zones.
Mulder, M. ; Willems, Bert (Tilburg University, TILEC) discuss Competition in Retail Electricity Markets : An Assessment of Ten Years Dutch Experience.
ABSTRACT: This paper examines a decade of retail competition in the Dutch electricity market and discusses market structure, regulation, and market performance. We find a proliferation of product variety, in particular by the introduction of quality-differentiated green-energy products. Product innovation could be a sign of a well-functioning market that caters to customer’s preferences, but it can also indicate a strategic product differentiation to soften price competition. Although slightly downward trending, gross retail margins remain relatively high, especially for green products. Price dispersion across retailers for identical products remains high, as also across products for a single retailer. We do not find evidence of asymmetric pass-through of wholesale costs. Overall, the retail market matured as evidenced by fewer consumer complaints and higher switching rates. A fairly intensive regulation of mature energy retail markets appears to be needed to create benefits for consumers.
Wednesday, July 26, 2017
ARA Tomohiro and Arghya GHOSH discuss Tariffs, Vertical Oligopoly, and Market Structure.
ABSTRACT: We study the impact of market thickness on the optimal tariff in vertical specialization. We show that, in the exogenous market structure where the extensive margin is fixed and only the intensive margin responds to trade policy, when the Home optimal tariff is higher, the thicker is the Home final-good market (relative to the Foreign intermediate-good market). In the endogenous market structure where both extensive and intensive margins respond to trade policy, this relationship is overturned and as the Home optimal tariff is higher, the thinner is the Home final-good market. We also show that our analysis has an advantage of separately deriving the impact of tariffs on the extensive and intensive margins of homogeneous goods.
Dainis Zegners, University of Cologne - Faculty of Management, Economics and Social Sciences and Tobias Kretschmer, Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management); Centre for Economic Policy Research (CEPR) address Competition with Aftermarket Power When Consumers are Heterogeneous.
ABSTRACT: We study a model of competitive foremarkets and partly monopolized aftermarkets. We show that high aftermarket power prompts firms to engage in inefficiently aggressive below‐cost pricing in the foremarket. This inefficiency is driven by the presence of consumers with valuations below marginal cost. While for intermediate aftermarket power their presence leads to a competition‐softening effect, for high aftermarket power firms attract increasing numbers of unprofitable consumers by aggressively pricing below cost. For high aftermarket power, firms' equilibrium profits can therefore be decreasing in aftermarket power but are always higher than for low aftermarket power. If firms engage in price discrimination by bundling the foremarket and aftermarket goods or by reducing their aftermarket power, they avoid selling to unprofitable consumers but also reduce the competition‐softening effect. This decreases firms' equilibrium profits but increases consumer and social welfare.
Thibault Schrepel, University of Paris-Saclay offer Predatory Innovation: A Response to Suzanne Van Arsdale & Cody Venzke.
ABSTRACT: Predatory innovation – which is defined as the alteration of one or more technical elements of a product to limit or eliminate competition – is arguably one of the most important subjects faced by antitrust law in the context of the New Economy. It encompasses all practices that, under the appearance of genuine innovations, are anti-competitive strategies (Sherman Act Section 2 or 102 TFEU) aimed at eliminating competition. The objective is to remove the compatibility of third party technologies with a dominant firm’s product, or to impair competing technologies’ operations.
Very few literature deals with predatory innovation, and yet, the significance that digital technologies have taken in our everyday life implies that related anti-competitive practices might affect a great number. Predatory innovation practices are particularly propitious to spread rapidly to the extent that they may appear with any updates, which sometimes are installed without the user's consent.
On this basis, Suzanne Van Arsdale & Cody Venzke had published an article entitled “Predatory Innovation in Software Markets” in the Harvard Journal of Law & Technology (2015). Most predatory innovation related issues are well identified but the Article proposes the implementation of a specifically designed legality test—to address whether related practices should be sanctioned—which has numerous flaws. This note intends to show that the rules proposed by Van Arsdale & Venzke should be rejected and offers a broader perspective on how to deal with predatory innovation practices.
Methodologies for Calculating FRAND Damages: An Economic and Comparative Analysis of the Case Law from China, the European Union, India, and the United States
Anne Layne-Farrar, Charles River Associates; Northwestern University and Koren W. Wong-Ervin, George Mason University, Scalia Law School - Global Antitrust Institute offer Methodologies for Calculating FRAND Damages: An Economic and Comparative Analysis of the Case Law from China, the European Union, India, and the United States.
ABSTRACT: In the last several years, courts around the world, including in China, the European Union, India, and the United States, have ruled on appropriate methodologies for calculating either a reasonable royalty rate or reasonable royalty damages on standard-essential patents (SEPs) upon which a patent holder has made an assurance to license on fair, reasonable and non-discriminatory (FRAND) terms. Included in these decisions are determinations about patent holdup, licensee holdout, the seeking of injunctive relief, royalty stacking, the incremental value rule, reliance on comparable licenses, the appropriate revenue base for royalty calculations, and the use of worldwide portfolio licensing. This article provides an economic and comparative analysis of the case law to date, including the landmark 2013 FRAND-royalty determination issued by the Shenzhen Intermediate People’s Court (and affirmed by the Guangdong Province High People’s Court) in Huawei v. InterDigital; numerous U.S. district court decisions; recent seminal decisions from the United States Court of Appeals for the Federal Circuit in Ericsson v. D-Link and CISCO v. CSIRO; the six recent decisions involving Ericsson issued by the Delhi High Court; the European Court of Justice decision in Huawei v. ZTE; and numerous post-Huawei v. ZTE decisions by European Union member states. While this article focuses on court decisions, discussions of the various agency decisions from around the world are also included throughout.
Tuesday, July 25, 2017
Francisca Wals, University of Amsterdam - Faculty of Economics and Business (FEB) and Maarten Pieter Schinkel, University of Amsterdam - Amsterdam Center for Law & Economics (ACLE); Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) have a paper on Platform Monopolization by Narrow-PPC-BPG Combination: Booking Et Al.
ABSTRACT: The price parity clauses (PPCs) that online booking platforms impose have come under antitrust scrutiny. Wang and Wright (2017) argue that by preventing showrooming, a narrow PPC can reduce search costs and benefit consumers under between-platform competition. In response to having to give up its wide PPC to hotels, Booking.com emphasized its best price guarantee (BPG) to customers. We observe that a narrow PPC combined with a BPG leaves only Wang and Wright's Price Parity and Monopoly Equilibrium (PPME), in which consumers are worse off than with no platform operating at all. A more efficient (incumbent) platform can deter entry with the BPG, whereas upon entry of an equally efficient platform, the BPG allows the platforms to price coordinate. The detrimental narrow-PPC-BPG contract combination that we point out calls for different platform competition policy.
Michael A. Carrier, Rutgers Law School provides Sharing, Samples, and Generics: An Antitrust Framework.
ABSTRACT: Rising drug prices are in the news. By increasing price, drug companies have placed vital, even life-saving, medicines out of the reach of consumers. In a recent development, brand firms have prevented generics even from entering the market. The ruse for this strategy involves risk-management programs known as Risk Evaluation and Mitigation Strategies (“REMS”). Pursuant to legislation enacted in 2007, the FDA requires REMS when a drug’s risks (such as death or injury) outweigh its rewards. Brands have used this regime, intended to bring drugs to the market, to block generic competition. Regulations such as the federal Hatch-Waxman Act and state substitution laws foster widespread generic competition. But these regimes can only be effectuated through generic entry. And that entry can take place only if a generic can use a brand’s sample to show that its product is equivalent.
More than 100 generic firms have complained that they have not been able to access needed samples. One study of 40 drugs subject to restricted access programs found that generics’ inability to enter cost more than $5 billion a year. Brand firms have contended that antitrust law does not compel them to deal with their competitors and have highlighted concerns related to safety and product liability in justifying their refusals. This Article rebuts these claims. It highlights the importance of samples in the regulatory regime and the FDA’s inability to address the issue. It shows how a sharing requirement in this setting is consistent with Supreme Court caselaw. And it demonstrates that the brands’ behavior fails the defendant-friendly “no economic sense” test because the conduct literally makes no sense other than by harming generics.
Brands’ denial of samples offers a textbook case of monopolization. In the universe of pharmaceutical antitrust behavior, other conduct — such as “pay for delay” settlements between brands and generics and “product hopping” from one drug to a slightly modified version — has received the lion’s share of attention. But sample denials are overdue for antitrust scrutiny. This Article fills this gap. Given the failure of Congress and the FDA to remedy the issue, antitrust can play a crucial role in ensuring generic access to samples, affirming a linchpin of the pharmaceutical regime.
Simon Roberts, Centre for Competition, Regulation & Economic Development (CCRED) offers Competition Law Prescriptions and Competitive Outcomes: Insights from Southern and East Africa.
ABSTRACT: The spread of competition law across southern and East Africa is considered in light of issues raised by research done across the region in recent years in key markets. This research considers the nature and extent of competition in practice, and the role, if any, played by competition law and policy. The selected markets are for two commodities, cement and fertilizer, which can be considered the ‘bread and butter’ of competition enforcement, and the markets for services in telecommunications and finance commonly described under the heading of ‘mobile money’. East Africa, specifically Kenya and Tanzania, are global leaders in the development of these services. The paper also reflects on work relating to barriers to entry in South Africa. Conclusions are drawn as to a competition policy and enforcement agenda to foster competitive markets in African countries.
The Democratic Party has unveiled "A Better Deal" which includes a significant discussion of antitrust and competition policy themes.
There is central emphasis on the importance of competition policy, particularly a focus on concentration and in mergers.
The three parts of A Better Deal are:
- Prevent big mergers that would harm consumers, workers, and competition.
- Require regulators to review mergers after completion to ensure they continue to promote competition.
- Create a 21st century ‘Trust Buster’ to stop abusive corporate conduct and the exploitation of market power where it already exists.
Some of the themes are tied to things that our current antitrust institutions do well and may be critiques of specific deals. Other parts embrace an antitrust populism that has not existed since the 1960s and would require a new institutional structure. It is this part of the agenda of significant change that turns its back on both Clinton and Obama antitrust. Looking at issues such as employment in antitrust review is a real shift away from antitrust as a technocratic area to one that focuses more on antitrust populism. Back in 2012 when Jack Kirkwood, Bob Lande and Barak Orbach organized a Goals of Antitrust conference at GW that appeared in the Fordham Law Review, I thought that the goals of antitrust were more or less settled (contentious at the margins but really only at the margins) with antitrust populism more or less pronounced dead. Only a few years later antitrust populism is growing, particularly by those outside of the field. Within the field there are both law professors (e.g., Tim Wu) and economics professors (e.g., Fiona Scott Morton) pushing for the need for greater antitrust populism, although this view is not mainstream. When I think of the many capable Democratic antitrust enforcers at both agencies - Bob Pitofsky, Joel Klein, Christine Varney, Sharis Pozen, Bill Baer, Renata Hesse, Edith Ramirez among agency heads (to offer a non-exhaustive list and if I omitted you or your friend it was inadvertent) and many highly capable economists such as Carl Shapiro, Joe Farrell, Rich Gilbert, Ginger Gin, Francine Lafontaine, Howard Shelanski, Dan Rubinfeld, Jon Baker (again, if I didn't list you or your friends among economists, this list is not exhaustive - give me a break, it is 6:54am and I am rushing to post this while the kids eat breakfast) this antitrust populism suggests an indictment of their record. I think that overall, antitrust has made the life of American consumers better for the past 30 years.
Why the pushback against economic analysis now? How much of this is due to antitrust specific causes and how much to a broader distrust of markets post Great Recession I do not know. Our economic tools and analytical abilities are better now than in 1975. For me 1975 is a defining moment because it is when Mike Scherer explained before Congress that the then enforcement of the populist Robinson Patman statute hurt consumers (Recent Efforts to Amend or Repeal the Robinson-Patman Act—Part 2: Hearings Before
the Ad Hoc Subcomm. on Antitrust, the Robinson-Patman Act, and Related Matters of the H. Comm. on Small Bus., 94th Cong. 141 (1975) statement of Frederic M. Scherer, Director, Bureau of Economics, FTC). In 1977, DOJ Antitrust released its own report on Robinson Partman, describing the Act “protectionist” with a “deleterious impact on competition.”
What has been a consensus across political parties for decades in antitrust to protect consumers and promote innovation is now being fundamentally questioned.
Michael A. Carrier, Rutgers Law School and Carl J. Minniti III, Rutgers University, identify Biologics: The New Antitrust Frontier.
ABSTRACT: The pharmaceutical industry lies at the intersection of patent law, antitrust law, federal and state regulations, and complex markets. For the past several decades, courts and commentators have analyzed issues presented by brand-name and generic drug companies in the “small molecule” setting. But just as they have begun to comprehend the multiple moving parts, a new frontier has arisen involving large molecules known as “biologics.”
Biologics differ from small-molecule drugs along multiple axes. They are more expensive, costing hundreds of millions of dollars to develop. They cannot be precisely replicated, followed by “biosimilars” rather than generics. They are governed not by the Hatch-Waxman Act but by the Biologics Price Competition and Innovation Act. And they present a blank slate on which issues of innovation and competition will be hammered out in the decades to come. Given that biologics promise revolutionary advances like treatments for previously incurable diseases and cancer regimens offering substantial benefits over chemotherapy, the stakes could not be higher.
The small-molecule setting has been replete with collusive behavior such as “reverse payment” agreements by which brands and generics settle patent litigation and unilateral conduct by which brands modify their drugs to block generics, file frivolous government petitions, manipulate the regulatory regime, and deny materials generics need to enter the market. How likely are these (or other) forms of conduct to appear in the biologics industry? And if these behaviors occur, how should antitrust law respond? This Article addresses these questions, offering an antitrust framework for the conduct most likely to arise. In particular, it concludes that in the biologics setting, “citizen petitions,” the disparagement of biosimilars, and collusion between biologics and biosimilars will be more frequent and that “product hopping” and reverse-payment settlements will be less typical. The Article also recommends antitrust analysis similar to what courts have applied in the small-molecule setting and modestly more deferential for citizen petitions.
Antitrust finds itself at a unique and crucial moment: poised at the precipice of a new industry but able to draw on decades of case law in an analogous setting that has addressed issues of competition and innovation. It is far from obvious how much courts can—or should—take from that setting. This Article assists in this task by determining which antitrust principles and doctrines should be exported to the biologics setting while appreciating the differences that counsel against such extrapolation. Given the importance of life-saving cancer treatments and an impending $400 billion market, there is no time to waste.
Monday, July 24, 2017
Private Equity Companies and Parental Liability—Appeal Court Hands Down Judgement in the Dutch Flour Cartel
Pieter van Osch describes Private Equity Companies and Parental Liability—Appeal Court Hands Down Judgement in the Dutch Flour Cartel.
ABSTRACT: In an appeal against the first ever cartel fine imposed by the Autoriteit Consument & Markt (Authority for Consumers and Markets, ‘ACM’) on a private equity investor, the Rotterdam district court had to decide on the question whether the concept of parental liability applies to these firms without restriction. Applying the case law developed by the EU courts and upon a concrete review of the economic, organisational, and legal links between the parties, the court upheld the ACM’s decision confirming that the concept of parental liability does not except private equity investors.
Andreas Stephan, UEA Law School & Centre for Competition Policy offers An empirical evaluation of the normative justifications for cartel criminalization.
ABSTRACT: A growing number of jurisdictions treat ‘hardcore’ cartel conduct as crime, in the belief that the threat of incarceration is necessary for deterrence. The significant economic harm caused by cartels is generally undisputed, but there is disagreement over whether cartel conduct is morally offensive enough to justify criminalisation. Critics argue that it is another example of ‘over-criminalisation’, seeking to regulate an activity that is morally ambiguous. Those in favour have sought to formulate normative justifications for why cartel conduct should be crime. Many of these rely on the assumption that members of society expect markets to be competitive and believe cartels are undesirable. This paper makes a significant contribution by testing this question empirically. Public surveys from the UK, Germany, Italy and the US are used to critically analyse the extent to which normative justifications for cartel conduct have empirical backing.
Albert Sanchez-Graells asks Ski Taxi: Joint Bidding in Procurement as Price-Fixing?
ABSTRACT: Since joint bidding in public procurement procedures involves price-fixing between the members of the bidding consortium, the assessment of whether it reveals a sufficient degree of harm to competition only requires limited consideration of its economic and legal context, which may be restricted to what is strictly necessary to establish the existence of a restriction of competition by object.
Evonik Degussa v Commission: Hearing Officer’s Review of Confidentiality Claims on Leniency Information in Public Versions of European Commission Cartel Decision
Christian von Köckritz has written on Evonik Degussa v Commission: Hearing Officer’s Review of Confidentiality Claims on Leniency Information in Public Versions of European Commission Cartel Decision.
ABSTRACT: When deciding on the disclosure or publication of leniency information in public versions of Commission decisions, the hearing officer is obliged to examine any ground based on rules of EU law raised by the company concerned in order to justify the confidentiality of the contested information. Public versions of Commission decisions may not contain quotes from corporate statements of leniency applicants; however, they may contain quotes from other documents submitted in support of a leniency application subject to compliance with professional secrecy and the protection owed to business secrets and other confidential information.
Friday, July 21, 2017
Giuseppe Colangelo, LUISS Guido Carli, Department of Business and Management; University of Basilicata, Department of Mathematics, Computer Science and Economics and Mariateresa Maggiolino, Bocconi University - Department of Legal Studies; Ask Research Center have written on Big Data as a Misleading Facility.
ABSTRACT: Currently, many technologies translate both empirical phenomena and human interactions into digital data. Accordingly, when processed and analysed, these data become sources of pieces of information, correlations, predictions and meanings that would otherwise remain hidden inside facts and human behaviours. Firms may use this “disclosed knowledge” for business purposes; that is, to guess not only rivals’ strategies but also consumers’ actual and potential wants and needs. Therefore, there is room to argue that, for bringing about better products and services, such “disclosed knowledge” is a competitive advantage. Yet, does this conclusion entail that the data revealing this “disclosed knowledge” essential facilities?
We do not believe so. The logic gap between business-friendly knowledge and essential data is huge, even if the data under scrutiny are not among the many and varied ones that firms may collect, and even if some consider these data as barriers to entry that shelter the market power of some firms. In other words, we maintain that characterising big data resulting in business-friendly knowledge as an essential facility is misleading. Such a characterization misses an intermediate step: that concerning the information extracted from big data. In addition, to argue against the idea that big data could be essential facilities, we consider the many drawbacks that the connected duty to share could produce.