Wednesday, January 4, 2017
Jan M. Rybnicek, Freshfields Bruckhaus Deringer LLP and Laura C Onken, Freshfields Bruckhaus Deringer LLP ask A Hedgehog in Fox's Clothing? The Misapplication of GUPPI Analysis.
ABSTRACT: Merger analysis in the United States has witnessed significant improvement over the last 50 years. The antitrust agencies steadily have moved away from a rigid step-by-step approach that focuses on counting the number of firms in a market to assess whether a proposed transaction is likely to substantially lessen competition. In place of this simplistic analytical framework, the agencies have shifted toward a more sophisticated evidence-based method that is grounded in modern economics and that employs a variety of new tools to determine a merger’s likely competitive effects. Among the most significant changes is the discussion of the value of diverted sales as part of unilateral price effects analysis and the endorsement of the Gross Upward Pricing Pressure Index ("GUPPI"). In this paper we assess how the GUPPI has been applied in modern merger analysis and whether it truly has lived up to its promise. We argue that the GUPPI regularly fails to live up to its promise for two principal reasons: (1) the GUPPI all too often is based on inaccurate or incomplete data and (2) there is insufficient guidance to allow the business community and the antitrust bar to draw reliable conclusions about how the GUPPI will be incorporated into the antitrust agencies’ enforcement decisions. As a result, GUPPI often fails to deliver the more rigorous and effects-based analysis we expect under modern merger review and instead reverts to an outdated focus on market concentration.
2017 ANTITRUST WRITING AWARDS: Votes for the best antitrust articles (and most innovative soft laws) – NOW OPEN
Yogesh Pai, National Law University Delhi, Centre for Innovation, IP and Competition (CIIPC) and Nitesh Daryanani, Centre for Innovation, Intellectual Property and Competition Patents and Competition Law in discuss India: CCI's Reductionist Approach in Evaluating Competitive Harm.
ABSTRACT: The objective of this paper is to examine the CCI’s reasoning and approach in patent – related cases, in light of (i) the legislative framework governing competition and patent law in India, (ii) the economic theories that govern the intersection between antitrust and patent law, and (iii) the manner in which competition agencies in comparative jurisdictions have dealt with similar agreements and conduct by a patent holder.
Part 1 of this paper deals with an analysis of the distinction between sections 3 and 4 of the Competition Act 2002, in light of the CCI’s tendency to conflate issues pertaining to abuse of dominance and evaluation of anti-competitive agreement involving patents. Part 2 deals with constraints on pricing imposed in several CCI rulings. Part 3 deals with nonprice licensing restrictions as constituting abuse of dominance. Part 4 deals with cases involving a refusal to deal where products are protected by IP rights or proprietary technologies. Part 5 deals with the practice of price discrimination in unified systems markets dominated by intellectual property.
John Asker, Chaim Fershtman, Jihye Jeon, Ariel Pakes examine The Competitive Effects of Information Sharing.
ABSTRACT: We investigate the impact of information sharing between rivals in a dynamic auction with asymmetric information. Firms bid in sequential auctions to obtain inputs. Their inventory of inputs, determined by the results of past auctions, are privately known state variables that determine bidding incentives. The model is analyzed numerically under different information sharing rules. The analysis uses the restricted experience based equilibrium concept of Fershtman and Pakes (2012) which we refine to mitigate multiplicity issues. We find that increased information about competitors’ states increases participation and inventories, as the firms are more able to avoid the intense competition in low inventory states. While average bids are lower, social welfare is unchanged and output is increased. Implications for the posture of antitrust regulation toward information sharing agreements are discussed.
Matthew E. Kahn and Jerry Nickelsburg offer An Economic Analysis of U.S Airline Fuel Economy Dynamics from 1991 to 2015.
ABSTRACT: Airline transport generates a growing share of global greenhouse gas emissions but as of late 2016, this sector has not faced U.S. fuel economy or emissions regulation. At any point in time, airlines own and lease a set of durable vehicles and have invested in human and physical capital and an inventory of parts to maintain these vehicles. Each airline chooses whether to scrap and replace airplanes in their fleet and how to utilize and operate their fleet of aircraft. We model these choices as a function of real jet fuel prices. When jet fuel prices are higher, airlines fly fuel inefficient planes slower, scrap older fuel inefficient planes earlier and substitute miles flown to their more fuel efficient planes.
Tuesday, January 3, 2017
Carrie Colla, Julie Bynum, Andrea Austin, and Jonathan Skinner analyze Hospital Competition, Quality, and Expenditures in the U.S. Medicare Population.
ABSTRACT: Theoretical models of competition with fixed prices suggest that hospitals should compete by increasing quality of care for diseases with the greatest profitability and demand elasticity. Most empirical evidence regarding hospital competition is limited to heart attacks, which in the U.S. generate positive profit margins but exhibit very low demand elasticity – ambulances usually take patients to the closest (or affiliated) hospital. In this paper, we derive a theoretically appropriate measure of market concentration in a fixed-price model, and use differential travel-time to hospitals in each of the 306 U.S. regional hospital markets to instrument for market concentration. We then estimate the model using risk-adjusted Medicare data for several different population cohorts: heart attacks (low demand elasticity), hip and knee replacements (high demand elasticity) and dementia patients (low demand elasticity, low or negative profitability). First, we find little correlation within hospitals across quality measures. And second, while we replicate the standard result that greater competition leads to higher quality in some (but not all) measures of heart attack quality, we find essentially no association between competition and quality for what should be the most competitive markets – elective hip and knee replacements. Consistent with the model, competition is associated with lower quality care among dementia patients, suggesting that competition could induce hospitals to discourage unprofitable patients.
Conor Quigley and Suzanne Rab have a new book on Hong Kong Competition Law.
BOOK ABSTRACT: This important new book provides a substantive introduction to Hong Kong competition law contained in the new Competition Ordinance as supplemented by the Competition Commission's Guidelines. Reference is also made to the most important case law concerning competition rules in other jurisdictions, in particular the European Union, from which the Hong Kong competition rules draw inspiration. Hong Kong Competition Law also sets out fully the procedural and enforcement rules before the Competition Commission and the Competition Tribunal. Specific sections deal with the application of competition law to the major economic sectors in Hong Kong: construction, energy, finance, retail, telecommunications and transport. A final chapter provides a comparative survey of competition law in China, Japan and South Korea.
Private Enforcement of EU Antitrust Law and Its Relationship with Public Enforcement: Past, Present and Future
Wouter P. J. Wils, King's College London; European Commission summarizes Private Enforcement of EU Antitrust Law and Its Relationship with Public Enforcement: Past, Present and Future.
ABSTRACT: This paper provides a short history of private enforcement of EU antitrust law and its relationship with public enforcement, from the 1957 EEC Treaty over Regulation 17 and Regulation 1/2003 until Directive 2014/104 and the current outlook.
Does Merger Enforcement Depend on the Portion of the Merger Associated with the Competitive Concerns?
Malcolm B. Coate, U.S. Federal Trade Commission (FTC) and Shawn W. Ulrick, U.S. Federal Trade Commission (FTC) ask Does Merger Enforcement Depend on the Portion of the Merger Associated with the Competitive Concerns?
ABSTRACT: Most mergers involve multiple markets. The potential for settlement can vary by the fraction of the overall deal attributable to the markets of concern. (i.e., by the “overlap”). If an antitrust agency challenges a merger having only a small overlap, negotiating a settlement is very likely; but if the entire transaction is at issue, a challenge decision often leads to litigation. Regulators, antitrust attorneys, and expert economists have long wondered if the degree of overlap influences upon the agency’s challenge decision, because settlement and litigation impose disparate costs (including litigation risks and time-delays) on the agency and firms. Given over 20 years of experience with modern merger analysis, it is possible to address this question with several empirical models: (1) a two-stage estimation of the settle-challenge process, (2) decomposition analyses focused on matters exhibiting either high or low overlaps, and (3) statistical matching analyses. These models predict differences of 13 to 19 percentage points between the challenge probabilities of mergers exhibiting high and low overlaps. The difference suggests the potential for over- or under-enforcement. Comparing the FTC policy to that of the court quantifies this potential. The exact magnitude depends on the assumptions used to interpret the evidence. One set of assumptions suggests less enforcement when the overlap is high, while another set of assumptions predicts more enforcement when the overlap is low.
Monday, January 2, 2017
Hyeokkoo Eric Kwon, KAIST Business School, Byung Cho Kim, Virginia Polytechnic Institute & State University - Pamplin College of Business, and Wonseok Oh, KAIST Business School analyze The Toll of Patent Trolls: Implications for Innovation.
ABSTRACT: Groundbreaking innovations are protected by patent systems, but innovations are not always transformed into products. Creators sometimes become victims of legal conflicts and money games. These problems particularly originate from the activities of patent trolls, who generate profits by enforcing patent rights against innovative firms. Despite the urgency and severity of the NPE-related issues in a business context, business scholars have been largely reticent in examining such opportunistic misconduct. The current research endeavors to illuminate the nature and causes of patent trolling by grounding Akerlof’s framework, in which information asymmetry results in market failure. This study also provides policy implications that preserve the health of our innovation landscape. Key findings suggest that low patent quality and high litigation costs encourage trolls to engage in ill-intentioned behaviors and discourage inventors from innovations. Increasing the minimum standards and improving patent value itself not only hinder exploitation by trolls but also induce the transfer of wealth to inventors. Discouraging trolls, however, is contingent on two preconditions: the quality of patents should be ensured, and the current damage compensation scheme should be rationalized. Our analytical derivations reveal that actions designed to deter opportunistic intent do not always encourage innovators to commercialize their inventions, but sometimes hinder commercialization of innovations. Our frameworks provide insights into addressing these issues in a synchronous manner, thereby upholding the forward-looking vision of innovation.
Stacey L. Dogan, Boston University - School of Law explores The Role of Design Choice in Intellectual Property and Antitrust Law.
ABSTRACT: When is it appropriate for courts to second-guess decisions of private actors in shaping their business models, designing their networks, and configuring the (otherwise non-infringing) products that they offer to their customers? This theme appears periodically but persistently in intellectual property and antitrust, especially in disputes involving networks and technology. In both contexts, courts routinely invoke what I call a “non-interference principle” — the presumption that market forces ordinarily bring the best outcomes for consumers, and that courts and regulators should not meddle in the process. This non-interference principle means, for example, that intermediaries need not design their networks to optimize enforcement of intellectual property rights, and monopolists need not consider the effects on competitors when they devise and sell new products.
Yet in both contexts, on rare occasions, courts deem the non-interference principle inapplicable and find liability, at least in part, based on a party’s choice of product design. Although intellectual property and antitrust scholars have each addressed judicial treatment of product design within their discipline, commentators have given little attention to similarities and differences between how the non-interference principle plays out in each context. Such an investigation yields interesting insights about the values underlying non-interference, and has implications for judges applying the principle in both intellectual property and antitrust law. This essay explores the non-interference principle in intellectual property and antitrust law, with an eye toward the factors that determine its applicability across the two doctrinal contexts.
P. Sean Morris, University of Helsinki - Faculty of Law describes Trademarks As Sources of Market Power: Drugs, Beers and Product Differentiation.
ABSTRACT: This article defines the notion of market power and how in conjunction with trademark rights give rise to elements that are deemed anticompetitive in a free market society. I will use legal arguments to consider how important developments in antitrust economics, particular, product differentiation and monopolistic competition have contributed to other developments in the intellectual property/antitrust divide. My goal is to demonstrate that once a better picture of market power is developed, trademarks which are used as a form of differentiation are a source of market power. In the paper, I examine product differentiation and its relationship to trademarks by using the path breaking theoretical work of Chamberlin’s Theory of Monopolistic Competition (1933). A key goal in this paper is to demonstrate that “most prices involves monopoly elements” and are “mingled in various ways with competition,” as Chamberlin (2nd Edition, p.15), similarly developed in his work. I use a number of cases in the field of trademarks to underscore the key points in my argument that trademarks are a source of market power. These case developments, I argue, contributes to the monopolistic tendencies of trademarks and such tendencies are associated with the theory on market power and product differentiation. To underscore my arguments even further, I examine the ABI Beer Corporation and their various trademarks/brands to determine if such brands are a source of market power and effectively give ABI a monopoly on the beer market. Another crucial discussion in the paper to support my thesis is on product hopping in pharmaceuticals. I then develop a theory of branded monopoly and suggest that there is a need for a new direction in trademarks and antitrust law. If recognizing that trademarks are a source of market power, and hence, a core concern for antitrust law and policy, then the legal foundations of the current trademark system would need a radical redesign. If on the other hand, recognizing that trademarks are a source of market power, but does not conflict with antitrust law, and antitrust enforcers are to ignore conducts such as barriers to entry, then antitrust law and trademark law can continue to co-exist in the current system, but would be on dubious grounds.
Friday, December 30, 2016
Jeffrey A. Eisenach, American Enterprise Institute; NERA Economic Consulting examines US Merger Enforcement in the Information Technology Sector.
ABSTRACT: U.S. merger policy seeks to prevent transactions that would result in a substantial lessening of competition in a relevant product market. Competition is harmed when a transaction results in a significant increase in market power, defined as the ability of a firm, or group of firms, to set and maintain prices above (or reduce quality below) the competitive level, thereby harming consumer welfare; or, in an increase in the incentive and ability of a dominant firm to engage in anticompetitive activities, such as raising rivals’ costs. Under prevailing jurisprudence, transactions which significantly increase concentration in a relevant market above certain levels are presumed to increase market power and substantially lessen competition. However, merging parties seeking to win approval of transactions that significantly increase concentration may rebut the presumption of illegality by demonstrating through other evidence that the transaction will not actually harm competition, or that any harms are offset by increases in transaction-specific efficiencies.
The application of these concepts to transactions in information technology (IT) markets is complicated by the fact that such markets have distinct economic characteristics. Specifically, IT markets typically exhibit dynamism, modularity, and demand- and supply-side economies of scale and scope (Eisenach 2012, Eisenach and Gotts 2015a). Each of these characteristics introduces challenges and complexities into the assessment of the competitive effects of mergers.
Thursday, December 29, 2016
Does Competition Policy Affect Acquisition Efficiency? Evidence from the Reform of European Merger Control
Gishan Dissanaike, University of Cambridge - Judge Business School, Wolfgang Drobetz, University of Hamburg, and Paul Peyman Momtaz, University of Hamburg ask Does Competition Policy Affect Acquisition Efficiency? Evidence from the Reform of European Merger Control.
ABSTRACT: We use the reform of the European Commission Merger Regulation as a natural experiment to examine the more general relationship between merger control and the profitability of corporate acquisitions. Our results suggest that acquisition efficiency is significantly lower in controlled deals, although the reform-induced improvement of legal certainty ameliorated this effect. The valuation effect is more pronounced in concentrated industries and in national cultures where firms tend to be more intolerant to uncertainty. These findings are consistent with the hypothesis that uncertainty about merger control decisions impedes M&A activity, which amplifies managerial entrenchment and enables managers to make agency-motivated acquisitions.
Wednesday, December 28, 2016
On February 2nd, the Canadian Bar Association will be co-sponsoring a one-day Consumer Protection conference in Atlanta with the American Bar Association. The conference will be held at the Atlanta Aquarium (with a welcome reception at the World of Coca-Cola on the evening of February 1st) and features discussions on various cutting-edge topics such as: government enforcement priorities in advertising/marketing and other areas, compliance challenges, best practices when responding to government investigations, regulation and disruptive technologies, claim substantiation in new or evolving industries, privacy/data protection in a digital world, and international trends.
Bruce Lyons, University of East Anglia, David Reader, University of East Anglia (UEA) - Centre for Competition Policy, and Andreas Stephan, University of East Anglia (UEA) - Centre for Competition Policy ask UK Competition Policy Post-Brexit: In the Public Interest?
ABSTRACT: This paper provides an analysis of the UK’s future Competition Policy, following its withdrawal from the EU. It is focused on whether the UK should make greater use of public interest tests in merger regulation, implement industrial policies aimed at protecting UK industries, or allow antitrust rules to diverge from those of the EU. We find that some of the new freedoms achieved by Brexit will be damaging to competitive markets. It may be necessary to legislate to limit these effects.
Tuesday, December 27, 2016
The Sokol family is in shock that Carrie Fisher has died. We are with my parents and all three generations of Sokols are distraught as we remember someone whom we never knew personally but meant so much to us through her writing and her iconic performance as Princess Leia of Star Wars. Just last week we saw a younger version of her through the magic of CGI in Rogue One.
Vithala R. Rao, Johnson Graduate School of Management, Cornell University, Yu Yu, AIG Science, and Nita Umashankar, J. Mack Robinson College of Business, Georgia State University examine Anticipated vs. Actual Synergy in Merger Partner Selection and Post-Merger Innovation.
ABSTRACT: Past research has primarily focused on what happens after a merger. This research attempts to determine whether anticipated benefits from the merger actually accrue. We characterize the effects of observed variables on whether pairs of firms merge, vis-à-vis roommate matching, and then link these factors to post-merger innovation (i.e., number of patents). We jointly estimate the two models using Markov Chain Monte Carlo methods with a unique panel data set of 1,979 mergers between 4,444 firms across industries and countries from 1992 to 2008. We find that similarity in national culture and technical knowledge has a positive effect on partner selection and post-merger innovation. Anticipated synergy from subindustry similarity, however, is not realized in post-merger innovation. Furthermore, some key synergy sources are unanticipated when selecting a merger partner. For example, financial synergy from higher total assets and complementarity in total assets and debt leverage as well as knowledge synergy from breadth and depth of knowledge positively influence innovation but not partner selection. Furthermore, factors that dilute synergy (e.g., higher debt levels) are unanticipated, and firms merge with firms that detract from their innovation potential. Overall, the results reveal some incongruity between anticipated and realized synergy.
Monday, December 26, 2016
Sofia Pais, Catholic University of Portugal (UCP) - Centro de Estudos e Investigação em Direito (CEID) asks Private Antitrust Enforcement: A New Era for Collective Redress?
ABSTRACT: It will be argued in this article that the EU Recommendation on common principles for collective redress might have limited impact on the field of competition law due to: several uncertainties regarding the legal standing in class actions; difficulties in their funding; and the risk of forum shopping with cross-border actions. Nevertheless, Belgium and Great Britain have recently introduced class actions into their national legal systems and addressed some of the difficulties which other Member States were experiencing already. It will also be suggested that the Portuguese model – the ‘Popular Action’ – and recent Portuguese practice may be considered an interesting example to follow in order to overcome some of the identified obstacles to private antitrust enforcement.
Saturday, December 24, 2016
Most downloaded antitrust law tenure track faculty of 2016 (based on December 2015-November 2016 downloads)
Who are people reading downloading in 2016? Among tenure track antitrust faculty the list is below. To qualify you need to be a tenure track faculty member in law somewhere in the world and have written at least one antitrust work in the last two years. This means that in some cases there are people who make the list who write primarily in areas outside of antitrust. Similarly, there are some people who are adjuncts who do not make the list who otherwise would (most notably, adjunct professor David Evans of U. Chicago and UCL, who is the 9th most downloaded law person in all of SSRN's law database).
|Name||School||Overall Rank||Antitrust Rank||Downloads in 2016|
|Josh Wright||George Mason||48||5||5,655|
|Pablo Ibáñez Colomo||LSE||117||12||3,744|
|Doug Ginsburg||George Mason||151||14||3,241|
|Bruce Kobayashi||George Mason||258||16||2,364|
|Alison Jones||Kings College||297||17||2,177|