Wednesday, May 11, 2016
Implications of Unprofitable Horizontal Mergers: A Positive External Effect Does Not Suffice to Clear a Merger!
Oliver Budzinski, Ilmenau University of Technology and Jurgen-Peter Kretschmer, Philipps University Marburg - Department of Business Administration and Economics analyze the Implications of Unprofitable Horizontal Mergers: A Positive External Effect Does Not Suffice to Clear a Merger!
ABSTRACT: Standard analysis of mergers in oligopolies along the lines of the popular Farrell-Shapiro Framework (FSF) relies, regarding its policy conclusions, on the assumption that rational agents will only propose privately profitable mergers. If this assumption were held, a positive external effect of a proposed merger would represent a sufficient condition to allow the merger. However, the empirical picture on mergers and acquisitions reveals a significant share of unprofitable mergers, and economic theory, moreover, demonstrates that privately unprofitable mergers can be the result of rational action. Therefore, we drop this restrictive assumption and allow for unprofitable mergers to occur. This exerts a considerable impact on merger policy conclusions: while several insights of the original analysis are corroborated (e.g., efficiency defense), a positive external effect does not represent a sufficient condition for the allowance of a merger any longer. Applying such a rule would cause a considerable amount of false decisions.
Tuesday, May 10, 2016
Leonardo Iacovone, World Bank, Mariana De La Paz Pereira Lopez, World Bank and Marc Tobias Schiffbauer, World Bank argue Competition Makes it Better: Evidence on When Firms Use it More Effectively.
ABSTRACT: This paper uses a unique firm-level data set for Mexico, with information never used for research before, to assess how use of information technology (IT henceforth) influences firm performance. Further, the paper explores if, in the context of increasing competition from China, this effect is different for firms more strongly affected by competition where incentives for upgrading and innovation may be more intense. In this perspective, the paper analyzes the complementarity between IT and other changes spurred by competition, taking advantage of the exogenous shock generated by Chinese competition. The results indicate that IT use has higher effects over productivity in the case of firms facing higher competition from China, in the domestic market and in the U.S. market. Furthermore, the paper shows how these changes appear to be driven by complementary investments in innovation and organizational changes.
Daniel A. Crane, University of Michigan Law School and Adam G. Hester , University of Michigan Law School, Law School - JD Candidate examine State Action Immunity and Section 5 of the FTC Act.
ABSTRACT: The state action immunity doctrine of Parker v. Brown immunizes anticompetitive state regulations from preemption by federal antitrust law so long as the state takes conspicuous ownership of its anticompetitive policy. In its 1943 Parker decision, the Supreme Court justified this doctrine on the observation that no evidence of a Congressional will to preempt state law appears in the Sherman Act’s legislative history or context. In addition, commentators generally assume that the New Deal Court was anxious to avoid re-entangling the federal judiciary in Lochner-style substantive due process analysis. The Supreme Court has observed, without deciding, that the Federal Trade Commission might not be bound by the Parker doctrine but instead enjoys “superior preemption” authority under Section 5 of the FTC Act. Drawing on the FTC Act’s legislative history and its institutional distinctiveness from Sherman Act enforcement, this Article makes an affirmative case for FTC superior preemption power over anticompetitive state laws.
Intellectual Property, Standards, and Antitrust: A New Life for the Essential Facilities Doctrine? Some Insights from the Chinese Regulation
Giuseppe Colangelo LUISS Guido Carli University; Università degli Studi della Basilicata, and Roberto Pardolesi, Libera Università degli Studi Sociali (LUISS) Guido Carli have written on Intellectual Property, Standards, and Antitrust: A New Life for the Essential Facilities Doctrine? Some Insights from the Chinese Regulation.
ABSTRACT: It is still controversial whether the intellectual property-antitrust interface should be viewed as a conflict or a finalistic convergence. The recent Chinese Regulation on the “Prohibition of Conduct Eliminating or Restricting Competition by Abusing Intellectual Property Rights” provides the opportunity to update the analysis of this real (or apparent) conflict.
Jorge L. Contreras, University of Utah - S.J. Quinney College of Law and Liza Vertinsky, Emory University School of Law have a new paper on Pre-Competition.
ABSTRACT: As costs rise and concerns grow about the pace of pharmaceutical innovation, both federal agencies and industry participants have turned to new forms of collaboration to increase the efficiency and effectiveness of biomedical research. Industry participants, many of them competitors, come together to define joint research and development objectives and share project results in what are widely known as “pre-competitive” collaborations. There is a prevailing understanding among both industry and governmental actors that these “pre-competitive” endeavors are not only permissible but encouraged.
While the term “pre-competitive” is prevalent in the pharmaceutical industry, it is missing from the antitrust lexicon. Neither the courts nor the federal agencies charged with enforcing U.S. antitrust laws have ever recognized “pre-competitive” activity as immune from antitrust challenge. Rather, antitrust regulators have repeatedly emphasized that when competitors collaborate, anti-competitive behavior may arise regardless of the stage at which they are collaborating.
This article, for the first time, critically examines the phenomenon of pre-competitive collaboration through an antitrust lens. It analyzes the apparent disconnect between the industry reliance on “pre-competition” as a way of demarcating pro-competitive arrangements among competitors, on the one hand, and the absence of any such distinction in antitrust law or practice, on the other. It then explores the ways that this disconnect may manifest itself in the choice and structure of collaborative arrangements and suggests a framework for refocusing attention on pro-competitive collaborations.
Monday, May 9, 2016
A View of the Macrocosm of International Cartel Enforcement: How the Boomerang of Cross-Border Disclosure Springs Back to its Domestic Context
Laura Guttuso, University of Queensland -TC Beirne School of Law offers A View of the Macrocosm of International Cartel Enforcement: How the Boomerang of Cross-Border Disclosure Springs Back to its Domestic Context.
ABSTRACT: This article aims to explore Australia’s role on an international cartel enforcement stage increasingly characterised by cross-border disclosure challenges in both public and private cartel proceedings. The task will be approached from a number of perspectives, including that of claimants and leniency applicants, either of domestic or foreign origin, finding their way into the Australian courts and disclosure processes. The practice in other jurisdictions, such as the European Union and the United States, will be set against the Australian experience, again viewed through the international lens. This multilayered inquiry provides useful insights into what are ultimately the challenges of how best to accommodate the wider interplay between public and private enforcement. This inevitably raises the question whether the response provided to these challenges at national enforcement level in Australia is still adequate. Now, given the backdrop of the current Harper Review, might be a good time to consider this question. This article aims to explore Australia’s role on an international cartel enforcement stage increasingly characterised by cross-border disclosure challenges in both public and private cartel proceedings. The task will be approached from a number of perspectives, including that of claimants and leniency applicants, either of domestic or foreign origin, finding their way into the Australian courts and disclosure processes. The practice in other jurisdictions, such as the European Union and the United States, will be set against the Australian experience, again viewed through the international lens. This multilayered inquiry provides useful insights into what are ultimately the challenges of how best to accommodate the wider interplay between public and private enforcement. This inevitably raises the question whether the response provided to these challenges at national enforcement level in Australia is still adequate. Now, given the backdrop of the current Harper Review, might be a good time to consider this question.
Vertical Issues Arising from Conduct between Large Supermarkets and Small Suppliers in the Grocery Market: Law and Industry Codes of Conduct
ABSTRACT: The grocery retail market is often recognised as problematic, with governments facing complaints from small retailers and suppliers about the practices of large companies and subsequent difficulties in competing with them. This leads to investigations into the grocery markets...
Placing the primary focus on the UK and Australian codes of conduct, this article will explore whether a specific regulation for the grocery retail market in the form of an industry code is or would be beneficial and whether a code of conduct is or could be an effective tool for dealing with the issues arising from an unequal bargaining power between large retailers and their suppliers. To determine the limitations of the law in this matter, the relevant Australian legal instruments will be surveyed. Indeed, Australia, having one of the most concentrated grocery retail markets in the world and a number of relevant legal instruments embodied in competition law and consumer law, provides a well-resourced example for the analysis of the issues occurring on the vertical chain in the grocery retail market.
These issues come about in two key areas: the first lies in unbalanced bargaining power between the large supermarket chains and smaller suppliers and creates unequal and/or unfair conditions. The second is based on a lack of enforcement of supplier "rights" and is thus related to the first group of issues. This lack of enforcement occurs for two reasons. First, suppliers fear potential commercial consequences enforced by large supermarkets and are, hence, reluctant to disclose unfair practices. This limits the deterrence and subsequent punishment of unwanted conduct. Secondly, without the existence of a specific legal or policy instrument, such as a soundly-based industry code, there might be, and as the analysis below will reveal in Australia there is a lack of prohibition of such practices and a lack of effective enforcement mechanisms.
The first group of issues will be drawn from inquiries into the grocery market in the United Kingdom and in Australia and from the rules embodied in the most recent UK and Australian industry codes of conduct. These are surveyed in the first part of the article, together with the reasons for tackling these issues, which will lead to arguments for addressing them by law and policy. After establishing the reasons, the relevant Australian law is outlined to determine whether a specific industry regulation of the analysed issues is needed. This part reveals a number of inefficiencies in the application of general law to these issues. On these bases, the enforcement of both codes of conduct is analysed to draw a final conclusion as to whether the codes of conduct are or could be an effective tool to deal with the analysed issues, primarily in the Australia context. The comparison of the codes further assists with the determination of the most effective mechanisms for tackling these issues.
William H. Page, University of Florida - Levin College of Law examines Tacit Agreement Under Section 1 of the Sherman Act. Worth downloading!
ABSTRACT: In dozens of cases each year alleging price fixing and other per se violations of Section 1 of the Sherman Act, the central issue is whether the defendants ever formed an agreement. One source of uncertainty in resolving this issue on pretrial motions and at trial is the meaning of “tacit agreement,” a term the Supreme Court has continued to include within Section 1, even as it has emphatically excluded “mere interdependence” or tacit collusion. In this article, I try to clarify the meaning of tacit agreement and show its practical significance in litigation. After examining how the Court used the term in Bell Atlantic Corp. v. Twombly, I situate tacit agreement in the hierarchy of means of coordination, distinguishing it especially from mere interdependence on the one hand and express agreement on the other. Then I argue for a definition of tacit agreement — interdependent conduct coordinated by prior communications of competitive intentions that lack any efficiency justification — and suggest what combinations of communication and conduct fit that definition. I argue that, so defined, tacit agreement is more effective than simple interdependence as a means of coordinating noncompetitive equilibria, and is easier for courts to penalize or enjoin without doing more harm than good. To show the analytical significance of the concept, I identify four categories of communications among rivals, depending upon whether the communications are public or private on the one hand, and whether they relate to present or future conduct on the other. I then examine cases involving all four kinds of communication to show their role in the identification and inference of tacit agreement. In the process, I consider the meaning and significance of signaling as communication that might form or implement an agreement. The clarified definition, illustrative cases, and categories of relevant communications will, I argue, help courts resolve, at every stage of litigation, whether rivals restricted competition by agreement.
Claudio A. Agostini, Universidad Adolfo Ibanez, Raul Lazcano, ILADES - Universidad Alberto Hurtado, Eduardo Saavedra, ILADES - Alberto Hurtado University, and Manuel Willington, Escuela de Gobierno - Universidad Adolfo Ibáñez have a paper on Predation and Network Based Price Discrimination in Chile.
ABSTRACT: This paper uses a model of strategic interaction among firms – that set discriminatory and nonlinear prices – together with public information on prices of the plans marketed by the three major mobile phone companies, to assess the extent to which on-net and off-net price differentials in the plans they offer could represent predatory practices in the mobile telephony market in Chile. The results show that these companies offered plans that could present evidence of predatory practices. Despite the fact that these plans were a small fraction of all the plans mobile phone firms offered they were recently banned by the antitrust authority as they represented a relevant fraction of all traffic.
Saturday, May 7, 2016
Daniel Sokol (University of Florida) and Wentong Zheng (University of Florida) examine FRAND (and Industrial Policy) in China.
ABSTRACT: This Chapter discusses antitrust-related FRAND issues in China. In Part I, we provide an overview of China’s antitrust regime and its interaction with intellectual property rights. In doing so, we offer an explanation of the nature of the Chinese antitrust regime that builds upon both the industrial organization and the political economy literatures. We also discuss the NDRC investigation into Qualcomm. Part II of this Chapter discusses standard setting in China, and how FRAND-related issues are handled under Chinese standard-setting laws and regulations. In Part III, we explore recent developments in Chinese courts that impact FRAND. In particular, we discuss the Huawei v. InterDigital case and its implications for global FRAND licensing. In Part IV, we offer thoughts on the lack of transparency in China’s antitrust regime as well as the use of industry policy in the FRAND setting and how these issues may negatively impact consumer welfare.
nvitational Symposium on the Non-Price Effects of Mergers
The American Antitrust Institute’s 2016 Invitational Symposium, Non-price Effects And Mergers: A Multidisciplinary Perspective, will examine the increasing importance of and emphasis on non-price dimensions of competition in merger analysis. This includes the effects of a merger on competition involving product quality, variety, service, innovation, etc. Experts from law, economics, and the business schools will convene for an afternoon symposium to offer insights on the nature and prospective role of non-price effects in merger analysis, challenges that they pose for antitrust enforcement, and suggested approaches for highlighting and integrating such analysis into enforcement decisions and competition policy.
The event will coincide with, and serve to motivate in multidisciplinary ways, AAI’s 17th Annual Conference Living with Market Concentration? New Perspectives on Merger Policy to be held the following day on June 16, 2016.
This event is by invitation. If you are interested in attending, please contact email@example.com.
The American Antitrust Institute’s 17th Annual Conference "Living with Market Concentration? New Perspectives on Merger Policy" will be held on Thursday, June 16, 2016. The plenary panels and breakout sessions will focus on merger enforcement against a backdrop made more complex by the wave of recent consolidation, growing evidence on the effects of previous consolidation, and challenges posed by merger remedies.
The conference will highlight several major and frontier issues in merger enforcement. Northeastern University Professor John Kwoka will discuss the growing challenge of merger remedies from his latest book Mergers, Merger Control, and Remedies (MIT Press). Penn State Law Professor Beth Farmer will moderate the afternoon plenary panel on mergers with international dimensions. Breakout sessions will focus on critical, evolving, and innovative issues, such as the role of economics in antitrust analysis, defining markets around customers and channels, competitive effects and bargaining power, private merger litigation, and broadening the lens on merger review.
Bill Baer, the Acting Associate Attorney General of the Department of Justice, will deliver the keynote address at the conference luncheon.
More information about the AAI’s Annual Conference, including the agenda and registration fees, is available at www.antitrustinstitute.org/2016annualconference. Sponsorship of this event is available through the AAI's Sponsorship Program.
Friday, May 6, 2016
Winston W. Chang, State University of New York at Buffalo - Department of Economics and Tai-Liang Chen, Zhongnan University of Economics and Law - Wenlan School of Business offer A Note on Second-Degree Price Discrimination: The Optimal Quantity-Discount Pricing Schedule.
ABSTRACT: This paper examines a monopolist's optimal multi-tier quantity-discount pricing scheme. In the linear demand case, it derives a new formula for determining the optimal total output for any number of tiers. The formula yields a convenient graphical representation of the optimal pricing scheme. The paper shows that all tiers' outputs are equal, the last tier's price is always higher than the marginal cost, and the larger is the number of tiers, the larger are the total output, profits, and social welfare but the lower is the consumer surplus. In the non-linear demand case, the paper shows how the individual tier's output structure is affected by the curvature of the demand curve.
Marianela Lopez-Galdos, George Washington University-Competition Law Center describes Competition in the Multilateral Development Organizations: A Holistic Perspective .
Abstract: This analysis presents a holistic perspective on the use of competition policy by Multilateral Development Banks' (MDBs) as an instrument to fulfill these organizations' mandate vis-a-vis poverty reduction and reveals the areas that could benefit from further cooperation with the competition community. The study is an attempt to inform potential cooperation opportunities between MDB's and the competition community with the aim of bringing closer together both communities.
Lauren Cohen, Harvard Business School; National Bureau of Economic Research (NBER), Umit G. Gurun, University of Texas at Dallas - Naveen Jindal School of Management, and Scott Duke Kominers, Harvard University explore Shielded Innovation.
ABSTRACT: We show that increased litigation risk has driven innovators to shield themselves by shifting innovation out of industry and into universities. We show both theoretically and empirically that litigation by non-practicing entities (NPEs) pushes innovation to spaces with reduced litigation threat. Innovation has shifted into universities (and away from public and private firms) in exactly those industries with the most aggressive NPE litigation, precisely following extensive NPE litigation. The extent of innovation shielding is large and significant. An increase of 100 NPE lawsuits in an industry shifts up the university share of innovation by roughly 70% in subsequent years (t=5.34).
Thursday, May 5, 2016
Margherita Colangelo, University of Rome III - Department of Law and Vincenzo Zeno-Zencovich, University of Rome III - Department of Law examine Online Platforms, Competition Rules and Consumer Protection in Travel Industry.
ABSTRACT: The article analyses the growing role of on-line intermediaries in travel and accommodation services and the concerns that have arisen under competition law. In particular the clauses which tie service providers to the intermediaries are discussed in the light of several cases brought in front of national competition authorities for alleged violation of Article 101 TFEU. The article then examines the uncertain legal relationship between intermediaries and the final client in order to establish if consumer protection laws should and could be extended to such intermediaries and if they may be considered liable for unfair commercial practices.
Marianela Lopez-Galdos, George Washington University-Competition Law Center is Comparing the US & the EU Failing Firm Defense: Reflections from an Economic Perspective.
ABSTRACT: The purpose of this paper is to compare the failing firm defense under the European Union and the United States antitrust regimes. In order to do so, the relevant case law and regulations will be studied. Moreover, to better understand the difficulties that the enforcement of the failing company defense brings about, the main problems of the application of this doctrine will be explained. Finally, other considerations such as efficiencies and social and environmental concerns related to the failing firm defense will be explored.
Marianela Lopez-Galdos, George Washington University-Competition Law Center has written on Antitrust Policy Tools & IPRs: US, Transatlantic & International Effects.
ABSTRACT: The paper tracks recent developments in the USA and EU competition systems with regards to the different policy tools used to address matters arising from the intersection of IP and competition policies. The analysis compares the enforcement and advocacy efforts carried out by the different antitrust agencies in the US and EU.
The paper first traces how different authorities with anti-trust mandate in the US have dealt with the issue balancing the rights of standard essential patent holders versus innovation driven public welfare. Then, the paper looks at how the antitrust authorities are using their antitrust statutes (e.g. Section 5 of the FTA Act, merger review provisions) to tackle IPR related issues that have tenuous connections to competition concerns.
All of the above issues have been highlighted with the aim to bring the attention to the spillover effects that these moves may have in the national, transatlantic and international context.
Joseph E. Harrington Jr., Johns Hopkins University - Department of Economics, Kai Huschelrath, Centre for European Economic Research (ZEW) and Ulrich Laitenberger, Centre for European Economic Research (ZEW); KU Leuven - Department of Managerial Economics, Strategy, and Innovation examine Rent Sharing to Control Non-Cartel Supply in the German Cement Market.
ABSTRACT: A challenge for many cartels is avoiding a destabilizing increase in non-cartel supply in response to having raised price. In the case of the German cement cartel that operated over 1991-2002, the primary source of non-cartel supply was imports from Eastern European cement manufacturers. Industry sources have claimed that the cartel sought to control imports by sharing rents with intermediaries in order to discourage them from sourcing foreign supply. Specifically, cartel members would allow an intermediary to issue the invoice for a transaction and charge a fee even though the output went directly from the cartel member’s plant to the customer. We investigate this claim by first developing a theory of collusive pricing that takes account of the option of bribing intermediaries. The theory predicts that the cement cartel members are more likely to share rents with an intermediary when the nearest Eastern European plant is closer and there is more Eastern European capacity outside of the control of the cartel. Estimating a logit model that predicts when a cartel member sells through an intermediary, the empirical analysis supports both predictions.
Wednesday, May 4, 2016
Ramsi Woodcock, Georgia State University - Risk Management & Insurance Department describes Uncertainty and Reverse Payments.
ABSTRACT: Antitrust has long agonized about how to regulate patent settlements that include a payment from a branded drug maker to a generic challenger in exchange for the generic’s promise to stay out of the market for a time. I make the case for a ban on all patent settlements that fix a date of entry, regardless of the existence of a “reverse payment” or whether entry leads to a duopoly or competition between multiple generic entrants. The current approach to reverse payments seeks to preclude only those settlements that are guaranteed to harm consumers. I argue that because there is uncertainty about how much delay drug makers will negotiate in settlement, antitrust must instead make it impossible for settlements to harm consumers. I argue that a settlement ban is the best way to do that.