Antitrust & Competition Policy Blog

Getting The Tough Deal Done: The Roles of The General Counsel and Outside Antitrust Counsel

Posted by D. Daniel Sokol

Craig Waldman & Aimee DeFilippo (Jones Day) explain Getting The Tough Deal Done: The Roles of The General Counsel and Outside Antitrust Counsel.

ABSTRACT: The merger approval process can be a challenging experience, especially in tough deals that prompt extended antitrust investigations. Long wait times, high costs, and the resulting uncertainty for the parties, their employees, customers, and investors about whether and when the deal will be consummated can make it difficult to hold a transaction together during a prolonged merger review. Adding further complexity is the global nature of M&A, as transactions with international implications can be particularly taxing on the parties.

It is obvious that managing a company through this process takes careful planning, hard work, and strategic thinking. What may be less obvious is the critical importance of close coordination and transparency between a company's general counsel ("GC") (or other in-house counsel responsible for the antitrust investigation) and its outside antitrust counsel. Few GCs have the time or the specialized expertise to advise merging companies on the myriad of issues encountered during a lengthy merger investigation, but they will be accountable to the Board and company for having set proper expectations and for ensuring that the merging companies interact with each other within the proper antitrust boundaries. A closely aligned outside counsel can be a valuable asset for a GC during what can be an arduous process. What is key is for outside counsel to not only be responsive to the GC's concerns, but also candid and direct about the likely outcomes and creative in developing solutions to accomplish the company's goals.

This article both describes the challenges GCs face during the merger review process, and suggests the optimal ways in which the GC and outside counsel can collaborate in order to maximize the chances of a successful result.

Coordinating Static and Dynamic Supply Chains with Advertising through Two-Part Tariffs

Posted by D. Daniel Sokol

Luca Lambertini, University of Bologna - Department of Economics is Coordinating Static and Dynamic Supply Chains with Advertising through Two-Part Tariffs.

ABSTRACT: Zaccour (2008) investigates the behaviour of a marketing channel where firms invest in advertising to increase brand equity, showing that an exogenous two-part tariff cannot be used to replicate the vertically integrated monopolist’s performance. I revisit the same model proving the existence of a multiplicity of franchising contracts taht can do the job. In particular, I set out by illustrating an optimal two-part tariff specified as a linear function of the upstream firm’s advertising effort, performing this task both in the static and in the dynamic game. Then, I show that an analogous result emerges (i) in the static game by writing the fixed component of the two-part tariff as a non-linear function of the manufacturer’s advertising effort; and (ii) by using a contract which is linear in the brand equity, in the dynamic case.

Antitrust as an Interdisciplinary Field: Insights from Business Strategy and Research

Posted by D. Daniel Sokol

Antitrust as an Interdisciplinary Field: Insights from Business Strategy and Research

Event Date:  Tuesday, June 11, 2013
Location: National Press Club, Washington DC
Fee: No registration fee but invitation is required
Link: http://www.antitrustinstitute.org/2013Symposium

AAI’s 2013 Invitational Symposium, Antitrust as an Interdisciplinary Field: Insights from Business Strategy and Research, will take stock of recent contributions to the understanding of competition and examine in more depth, developments occurring in economics and the business disciplines and their implications for antitrust thought and practice. The interdisciplinary day-long symposium will be held June 11, 2013 at the National Press Club, Washington D.C. The day will include presentations by noted scholars, business leaders, and experienced practitioners with expertise in antitrust law, economics, strategic management, marketing and related disciplines. Presentations will examine the evolving role of economics in competition policy and antitrust together with relevant trends and developments occurring in the business disciplines of strategic management and marketing. A concluding roundtable will invite participants to share their ideas and to discuss others.

Registration to the invitational symposium is now open.  Seating is limited.  To request an invitation, email aai@antitrustinstitute.org.

American Antitrust Institute 14th Annual Conference: Counseling Antitrust Compliance on the Frontier

Posted by D. Daniel Sokol

American Antitrust Institute 14th Annual Conference: Counseling Antitrust Compliance on the Frontier

Event Date: Wednesday, June 12, 2013
Location: National Press Club, Washington DC
Fee: Tuition for this program is $500 with a discounted rate of $120 for government employees, educators, public interest advocates, and students.
CLE: Four CLE credits are anticipated.
Link: http://www.antitrustinstitute.org/2013Conference

The AAI's 14th Annual Conference will cover a variety of issues relating to antitrust compliance. This conference will focus on the changing role of in-house counsel and of counseling generally with respect to antitrust compliance, taking special account of international enforcement trends affecting global competitive strategies.

Attendees can expect this conference to be different from other compliance programs.  Panelists and expert speakers will detail both pitfalls to avoid and the strategies that work, from a variety of enforcement perspectives. They will also focus on government perceptions of and policies toward compliance.

Register Here: http://www.antitrustinstitute.org/2013Conference

How Do Hospitals Respond to Market Entry? Evidence from A Deregulated Market for Cardiac Revascularization

Posted by D. Daniel Sokol

Suhui Li and Avi Dor (both GW) ask How Do Hospitals Respond to Market Entry? Evidence from A Deregulated Market for Cardiac Revascularization.

ABSTRACT: Regulatory entry barriers to hospital service markets, namely Certificate of Need (CON) regulations, are enforced in many states; although no longer federally mandated, policy makers in other states are considering reinstating CON policies in tandem with service expansions mandated under the Affordable Care Act. While numerous studies have examined the impacts of CON on hospital volumes, demand responses to actual hospital entry into local hospital markets are not well understood. In this paper, we empirically examine the demand-augmenting, demand-redistribution, and risk-allocation effects of hospital entry by studying the cardiac revascularization markets in Pennsylvania, a state in which dynamic market entry occurred after repeal of CON in 1996. Our findings with respect to demand-augmentation are mixed: we find robust evidence that high entrant market share mitigated the declining incidence of coronary artery bypass graft (CABG), but it had no significant effect on the rising trend in percutaneous coronary intervention (PCI) procedures, among patients with coronary artery disease. Consequently, incumbent hospitals experienced a decrease in the likelihood of PCI due to entry, thereby indicating a shift in demand away from incumbents to entrants, namely business-stealing. Results of our analyses further indicate that entry by new cardiac surgery centers tended to sort high-severity patients into the more invasive CABG procedure and low-severity patients into the less invasive PCI procedures. Thus, from a welfare perspective our results are mixed: on the one hand, free-entry may lead to improved access rather than business stealing for CABG procedures; on the other hand, the empirical evidence is in favor of business-stealing for PCI procedures. Moreover, free-entry improves the match between underlying medical risk and treatment intensity. These findings underscore the importance of considering market-level strategic responses by hospitals when regulatory barriers to entry are rescinded.

Coming in From the Cold: Improving Cartel Detection and Reporting

Posted by D. Daniel Sokol

The C.D. Howe Institute Competition Policy Council has a new report out on Coming in From the Cold: Improving Cartel Detection and Reporting.

Convergence of Procedural Standards in the European Competition Proceedings

Posted by D. Daniel Sokol

Maciej Bernatt, University of Warsaw, Centre for Antitrust and Regulatory Studies describes Convergence of Procedural Standards in the European Competition Proceedings.

ABSTRACT: In the article I argue that there is a need for the greater convergence of European procedural standards applicable in competition proceedings before the European Commission and competition proceedings before the National Competition Authorities. In order to prove this I use three main arguments. To begin with, I show that the differences in procedural standards applicable in the case of these two proceedings exist and influence the level of protection of entities participating in these proceedings. In this respect, I conduct the analysis of the EU and Polish competition procedure and I conclude that Polish competition procedure offers a lower level of protection of procedural rights. Additionally, I observe that in the EU free circulation of evidence among the members of European Competition Network takes place despite the differences in procedures that are used when collecting this evidence. I analyse also critically the rules governing allocation of cases in the ECN. Next, I show that the applicability of Article 6 of the ECHR to both the proceedings before the European Commission and the proceedings before the NCAs require the recognition and observance of the similar procedural standards. I argue the introduction of such standards is indispensable as the competition proceedings concern criminal accusations in the sense of Article 6 of ECHR. Finally, I observe the recognition and observance of similar procedural standards in competition proceedings is the consequence of binding character of the EU Charter of Fundamental Rights. In the conclusions I discuss how a convergence of procedural standards may be achieved.

Corporate Leniency Programs When Firms Have Private Information: The Push of Prosecution and the Pull of Pre‐Emption

Posted by D. Daniel Sokol

Joseph E. Harrington Jr, University of Pennsylvania discusses Corporate Leniency Programs When Firms Have Private Information: The Push of Prosecution and the Pull of Pre‐Emption.

ABSTRACT: A corporate leniency program provides relief from government penalties to the first member of a cartel to cooperate with the authorities. This study explores the incentives to apply for leniency when each cartel member has private information as to the likelihood that the competition authority will be able to convict them without a cooperating firm. A firm may apply for leniency because it fears being convicted (‘prosecution effect’) or because it fears another firm will apply (‘pre‐emption effect’). Policies by the competition authority to magnify concerns about pre‐emption - and thereby induce greater use of the leniency program - are also explored.

Achieving the Most Effective Outside Counsel and Client Relationship for Both Transactional Issues and Merger Reviews

Posted by D. Daniel Sokol

Michael McFalls (Ropes & Gray) describes Achieving the Most Effective Outside Counsel and Client Relationship for Both Transactional Issues and Merger Reviews.

ABSTRACT: Transactional work can provide outside antitrust counsel immense opportunities to create, cement, and expand relationships with in-house counsel. For IP-intensive businesses, antitrust counsel can provide a useful and often essential complement to the role that lead IP counsel often play as consigliore to a patentholder. For run-of-the-mill antitrust work associated with horizontal acquisitions, antitrust counsel can learn a significant amount about core businesses of the client in a very short period of time. For tough antitrust issues arising from high-stakes mergers and acquisitions, antitrust counsel can create enduring relationships with counsel with significant spillover to other types of antitrust work, particularly counseling on nonmerger issues involving related businesses, and, if necessary, related antitrust litigation. Just as these engagements can create opportunities for antitrust counsel to expand their relationships, they can just as easily lead to the end of relationships between outside counsel and clients. Obviously, poor or subpar results should always lead counsel to reconsider their relationship with the lead outside lawyer, and, in some circumstances, with the related law firm. But results are not necessarily the only or even most significant driver of client satisfaction. The process of reaching a result can be often more important than the result itself in serving clients, especially when that process involves a Second Request and months of tense engagement with the government, external stakeholders, and the merging parties themselves.

This process involves a series of decisions that outside antitrust counsel and in-house counsel make during the course of an engagement about how to divide certain responsibilities in the course of the antitrust engagement. Although those decisions (and the process of reaching them) may have an important impact on client relationships, we do not discuss those implications here. Nor do we describe our thoughts on the best way to allocate those responsibilities to maintain or enhance client relationships. Instead, we simply catalogue the variety of roles that either external or in-house counsel (or other client employees) can assume over the course of a transactional antitrust engagement.

Our assumption is that an effective outcome with the agencies or opposing counsel is the primary goal shared by external and in-house counsel. And our experience is that there are no hard-and-fast rules on how these roles should be allocated. Ultimately, the best way to divide responsibilities depends on what the situation may demand, what the client prefers, and, most importantly, what particular strengths external and in-house counsel can bring to a particular engagement. Certain default rules can be useful, but rigid playbooks are often not.

Bertrand Competition with an Asymmetric No‐Discrimination Constraint

Posted by D. Daniel Sokol

Jan Bouckaert, University of Antwerp - Department of Economics, Hans Degryse, KU Leuven - Faculty of Business and Economics (FBE) and Theon Van Dijk, Lexonomics analyze Bertrand Competition with an Asymmetric No‐Discrimination Constraint.

ABSTRACT: Regulators and competition authorities often prevent firms with significant market power, or dominant firms, from practicing price discrimination. The goal of such an asymmetric no‐discrimination constraint is to encourage entry and serve consumers' interests. This constraint prohibits the firm with significant market power from practicing both behaviour‐based price discrimination within the competitive segment and third‐degree price discrimination across the monopolistic and competitive segments. We find that this constraint hinders entry and reduces welfare when the monopolistic segment is small.

Antitrust's Pursuit of Purpose

Posted by D. Daniel

Sokol Barak Orbach, University of Arizona informs us about Antitrust's Pursuit of Purpose.

ABSTRACT: Consumer welfare is the stated goal of U.S. antitrust law. It was offered to resolve contradictions and inconsistencies in antitrust. The Supreme Court adopted it believing that “Congress designed the Sherman Act as a consumer welfare prescription.” Alas, since the introduction of the standard, antitrust has been searching for its purpose. This Foreword introduces the debate on the goals of antitrust and briefly presents perspectives in this debate.

Privatization, Underpricing and Welfare in the Presence of Foreign Competition

Posted by D. Daniel Sokol

Arghya Ghosh, University of New South Wales - Australian School of Business - School of Economics Manipushpak Mitra, Indian Statistical Institute, Kolkata and Bibhas Saha, University of East Anglia (UEA) - School of Economic and Social Studies address Privatization, Underpricing and Welfare in the Presence of Foreign Competition.

ABSTRACT: We analyze privatization in a differentiated oligopoly setting with a domestic public firm and foreign profit-maximizing firms. In particular, we examine pricing below marginal cost by public firm, the optimal degree of privatization and, the relationship between privatization and foreign ownership restrictions. When market structure is exogenous, partial privatization of the public firm improves welfare by reducing public sector losses. Surprisingly, even at the optimal level of privatization, the public firm's price lies strictly below marginal cost, resulting in losses. Our analysis also reveals a potential conflict between privatization and investment liberalization (i.e., relaxing restrictions on foreign ownership) in the short run. With endogenous market structure (i.e., free entry of foreign firms), partial privatization improves welfare through an additional channel: more foreign varieties. Furthermore, at the optimal level of privatization, the public firm's price lies strictly above marginal cost and it earns positive profits.

Editorial - Both Sides Now

Posted by D. Daniel Sokol

Stephen Calkins, Wayne State University Law School and Marek Martyniszyn, Loyola University Chicago School of Law, Institute for Consumer Antitrust Studies; University College Dublin - School of Law have authored an Editorial - Both Sides Now.

ABSTRACT: Competition law is fun. As a noted expert consultant told one of us: ‘Don’t tell my spouse, but I’d work on these cases for the sheer joy of it.’ The facts, the issues, the window into economies and legal systems -- it does not get much better than this. Not surprisingly, then, competition law academic seminars are also fun. At their best, they present opportunities for energized students to engage with scholars and wrestle with cutting edge issues in this particularly interesting field.

Each of the two authors of this Editorial recently had the opportunity to participate in such seminars on the less familiar side of the Atlantic.

The striking point, for both of us, is how different the experiences are. With all the talk about convergence of competition approaches, one might expect that the educational experiences would have harmonized. But they have not. This Editorial reflects on the differences we observed, implications from those differences for competition systems more generally, and the contributions of the four papers in this Special Issue.

Allocating Antitrust Risk in M&A Agreements

Posted by D. Daniel Sokol

Wayne Dale Collins and Lisl Dunlop (Shearman & Sterling) are Allocating Antitrust Risk in M&A Agreements.

ABSTRACT: The allocation of antitrust risk has become an important feature of modern M&A agreements. In many strategic deals, where an antitrust challenge by one or more reviewing agencies is a meaningful possibility, the allocation of antitrust risk can be as important to each of the merging parties as the price. The failure to negotiate mutually acceptable antitrust-related provisions in a sale and acquisition agreement can mean the end of the deal even before the antitrust review begins. In the typical negotiation where the sellers are selling for cash and will have no interest in the combined company, the buyer wants optionality, that is, the ability to terminate the acquisition agreement and walk away from the deal if the concessions necessary to obtain antitrust clearance are no longer consistent with its economic interest. Sellers, on the other hand, want deal certainty, that is, the assurance that the deal will close regardless of the concessions that might be required to obtain antitrust clearance.

The conditions precedent and the affirmative covenants in an acquisition agreement will determine the balance between the opposing interests of the buyer and seller. In addition, the "drop-dead date" in the termination provision (that is, the date before which the parties cannot escape their obligations under the contract) will determine how long the buyer has to defend the deal and satisfy its affirmative contractual obligations.

Finally, the willingness of a party to accept antitrust risk is a function of the consideration to be paid for the deal. Although it is obvious, it is worth noting that as a general rule buyers are willing to accept more risk the lower the price and sellers willing to accept more risk the higher the price. A little less obviously, consideration may be paid ex post in the purchase price, which is paid only if the deal closes, but also ex ante in a price that is paid regardless of whether the deal closes.

All of these provisions-conditions precedent, affirmative covenants, termination, and consideration-work together in allocating antitrust risk. Before turning to these provisions, however, it is helpful to step back and think about antitrust risk

The Irish High Court Issues its First Order on a Commitment Agreement between the NCA and an Undertaking (FitFlop)

Posted by D. Daniel Sokol

Marek Martyniszyn, Loyola University Chicago School of Law, Institute for Consumer Antitrust Studies; University College Dublin - School of Law and Anna Louise Hinds, National University of Ireland, Galway (NUIG) - Faculty of Law note that The Irish High Court Issues its First Order on a Commitment Agreement between the NCA and an Undertaking (FitFlop).

ABSTRACT: The Irish Competition (Amendment) Act 2012 introduced court-endorsed commitment agreements to Irish competition law. The new section 14B of the principal Competition Act 2002 provides for making commitment agreements between the Irish Competition and undertakings an order of the Irish High Court. This piece, first, investigates the prior Irish practice regarding commitment or settlement agreements and its legal basis. It looks then into the newly introduced rules on court-endorsed commitment agreements. Finally, before concluding, it points to the first instance of their application — to an order issued by the High Court in the FitFlop case in December 2012, which came into effect in February 2013.

Five Neglected Issues About Network Neutrality

Posted by D. Daniel Sokol

Pierre Larouche, Tilburg Law and Economics Center (TILEC); College of Europe - Bruges offers Five Neglected Issues About Network Neutrality.

ABSTRACT: From the vast and on-going network neutrality discussion, this contribution picks five neglected issues, which could affect the terms of the debate. After a brief introduction to the state of play in the EU (1.), it deals with market definition as it relates to the relationship between the ISP on the customer side and the content provider (2.), with the ability of competition law to deal with blocking and discrimination (3.), with the applicability of sector-specific regulation, more specifically the SMP regime found in EU electronic communications law (4.), with the introduction of differentiated Quality of Service (QoS) offerings (5.) and finally, with the internal market dimension of network neutrality (6.).

DOJ’s ABI/Modelo Challenge: Seeds Of More Aggressive Merger Review & Enforcement

Posted by D. Daniel Sokol

Mark J. Botti and Anthony W. Swisher (both Squire Sanders) have written on DOJ’s ABI/Modelo Challenge: Seeds Of More Aggressive Merger Review & Enforcement.

The Anti-Corruption and Antitrust Connection

Posted by D. Daniel Sokol

Josh Goodman (FTC) analyzes The Anti-Corruption and Antitrust Connection.

ABSTRACT: Three major U.S. aerospace companies stand accused of bribing foreign government officials to secure jet aircraft sales. The defendant companies settle the charges by entering into consent orders that require them to adopt new compliance policies for documenting their foreign payments. No—these are not the details of the latest Foreign Corrupt Practices Act (FCPA) case. These are the facts behind a trio of 1978 consent orders resolving antitrust law complaints brought by the Federal Trade Commission against Lockheed, Boeing, and McDonnell Douglas. As these cases illustrate, antitrust law and foreign corruption law in the United States have a long, yet often overlooked, shared history. The past decade has witnessed a resurgence in U.S. anti-corruption enforcement, and several cases in that time period serve to illustrate the parallel trends and convergences between the FCPA and the antitrust laws. Three such trends are particularly striking: (1) the rise of a compliance-focused enforcement model, (2) cases that combine antitrust and anti-corruption claims, and (3) an increase in international enforcement coordination and harmonization.

Evolution of Cartel Practice in Croatia

Posted by D. Daniel Sokol

Desa Mlikotin Tomic, University of Zagreb, Faculty of Economics and Business and Jasminka Pecotic Kaufman, University of Zagreb describe the Evolution of Cartel Practice in Croatia.

ABSTRACT: This paper analyses the development of cartel enforcement practice in Croatia since the first Competition Act was adopted in 1995, i.e. since the Competition Agency was established in 1997. Until 2009 only five decisions have been adopted which deal with the issue of cartel arrangements between competitors. The facts of these cases are presented and main legal issues discussed. The authors point out to three underlying characteristics of the ten-year enforcement practice: (a) all cartel cases concerned explicit collusion; (b) in all cartel cases there was an association of undertakings that promoted collusion and/or helped to enforce the cartel; (c) undertakings gave self-incriminating statements in the proceedings before the Competition Agency. On the basis of these characteristics the authors conclude that the fight against cartels in Croatia is still in its infancy. Some awaited legislation changes (introduction of leniency, competence of the Competition Agency to decide on fines) should make cartel enforcement more viable in the future.

Competition and Cooperation on European Southeast Air Transport Market

Posted by D. Daniel Sokol

Sanja Steiner, University of Zagreb, Mirko Tatalovic, Croatia Airlines and Jasmin Bajic, Croatia Airlines explore Competition and Cooperation on European Southeast Air Transport Market.

ABSTRACT: Regional Air Transport Market of Southeast Europe is becoming affected by all modes of increasing competition. This Paper will consider the different levels of achievements in traffic results of air carriers and airports of the Southeast Europe including macroeconomic analyses of 11 countries belonging to this the region. They represent more than 30 carriers and almost 40 airports. The year 2007 and 2008 saw high increase of the passenger and cargo carried within the region. More than 30 million passengers were carried and almost 84,000 tones of freight and mail. On 19 primary airports of the Southeast Europe it was carried more than 29 million passengers which is increase of 33 percent compared with the year 2006. Under above-mentioned increase, it is important to emphasize that the growth of airport handled passenger on new born EU countries Bulgaria and Romania was extremely high. Paper will also analyze categorization of the airports according to EU documents and directives. The future development under the new economic circumstances means also adjustments of business models that have been implemented. It also means necessity to cooperate and find out efficient mode of integration which will follow air traffic and legal framework of the EU. Positive example can be implementation of PSO (Public Service Obligation) for air carriers of the Southeast Europe network. Another challenge is capability to provide and realize privatization process for some of the most successful air carriers. The paper will also consider the air traffic forecasts of the Southeast Europe region, which will follow expected implementation of improved model and benefits for the population and economy of 11 countries.