Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Friday, November 11, 2016

Will consumers be winners in merger trials?

David Balto liken antitrust to baseball in an op-ed Will consumers be winners in merger trials?

November 11, 2016 | Permalink | Comments (0)

Punishing Cartel Behaviour: Means to Encourage Compliance with the Hong Kong Competition Ordinance

Sandra Marco Colino, The Chinese University of Hong Kong (CUHK) are Punishing Cartel Behaviour: Means to Encourage Compliance with the Hong Kong Competition Ordinance.

ABSTRACT: This paper examines the way that cartel behaviour may be sanctioned under the new Hong Kong Competition Ordinance, and assesses whether such punishment is suitable to efficiently deter this kind of anti-competitive activity. The legislation, adopted in 2012, has introduced an array of sanctions which are traditionally used in competition regimes around the world to fight practices considered to be particularly pernicious. When a company is found to have breached the CO, remedies and pecuniary penalties may be imposed on the corporation. In addition, individual sanctions are also contemplated, and directors may be disqualified in certain cases. Interestingly, harsher sanctions may be imposed on individuals who breach the procedural rules, including fines and even imprisonment.

The chapter consists of three main parts. It begins with an analysis of the goals that penalties in competition law ought to pursue by drawing on the traditional justifications of punishment, and focusing expressly on reparation, retribution and deterrence. Subsequently, an overview of the most important forms of punishing cartels is provided, with an assessment of their pros and cons. This is followed by a study of the specific penalties that are imposed in Hong Kong (both in the former sector-specific competition rules and in the new cross-sector CO), and their suitability to achieve the goals described in the first section. Finally, conclusions are drawn.

November 11, 2016 | Permalink | Comments (0)

Thursday, November 10, 2016

Asian Competition Forum 12th Annual Conference - 5th & 6th December 2016, Hong Kong

Asian Competition Forum 12th Annual Conference
5th & 6th December 2016, Hong Kong

INNOVATION, CREATIVITY, TECHNOLOGY: THE IMPACT OF COMPETITION LAW IN ASIA

DRAFT 18/10/2016

First Day – Morning
8:30 – 9:00 Registration
9:00 – 9:15
Welcome Speech and Opening Address
Ms. Rose Webb, CEO Hong Kong Competition Commission
9:15-10:00
Keynote Speech
Professor Michael JACOBS, Distinguished Research Professor of Law, De Paul University
College of Law, Chicago, USA

SESSION (A): Abuse of Dominance in Technology Markets
10:00-11:00
Chair: TBC
• Prof Ioannis KOKKORIS, Executive Director of Institute for Global Law, Queen
Mary University: 'Innovation, Search Engines and Abuse of Dominance';
• Prof Francisco MARCOS, IE Law School: 'Innovation by Dominant Firms in the
Market: Damned if You Don't... But Damned if You Do?'
• Mr. Stephen CROSSWELL, Partner, Competition Practice, Baker & McKenzie
(Hong Kong): 'Dominance or the power of innovation – how does a regulator know?'
11:00-11:15 Break

SESSION (B): Anti-Trust Standards and Innovation in Asia
11:15 – 12:45
Chair: TBC
• Ms. Dina KALLAY, Director, Competition & Intellectual Property, Ericsson:
'Asian Antitrust-Intellectual Property Developments in a Global Perspective';
• Mr. Karan Singh CHANDHIOK, Partner and Practice Head, Competition Law
and Disputes Practice, Chandhiok & Associates and Treasurer of the Competition
Law Bar Association: ' Should Traditional Anti-Trust Standards apply in Technology
Markets: Issues from India'
• Mr. Marc WAHA, Foreign Legal Consultant, Norton Rose Fulbright: 'The impact
of technological change on market definition and the competitive assessment';
• Prof. HOU Liyang, Professor and Assistant Dean, KoGuan Law School, Shanghai
Jiao Tong University: 'Impact of Innovation on Competition Law: from an outcomeoriented
approach to a process-oriented approach';

12:45 – 14:00

Lunch

First Day – Afternoon Breakout
SESSION (C ): ASEAN Jurisdictions and Innovation
14:00-15:30
Chair: TBC

• Mr. David FRUITMAN, Regional Competition Counsel, Senior Consultant DFDL
(Cambodia): 'The Legislative and Institutional Capacity of Cambodia to Address
Innovation Markets';
• Prof Dr. Ningrum SIRAIT, University of Sumatra Utara: 'Innovation, Intellectual
Property Rights and Fair Competition in Indonesia';
• Ms. Kanni RAMAIAH, University Technology MARA (Malaysia): ' Innovation,
Intellectual Property Rights and Fair Competition Policy in Malaysia';
• Commissioner Saidah SAKWAN, KPPU International: 'Online Transportation
Services: Competition or Regulatory Issue?';
• Mr. Anthony ABAD, President and CEO of Trade Advisors: 'Competition,
Innovation and Compliance for Technology-Driven Companies… The Case of the
Philippine Startup Ecosystem'.
15:30-15:45 Break

SESSION (D): Patent Terms and Competition Law
15:45-17:30
Chair: TBC
• Dr. Jasmine HUANG, Chu Hai College of Higher Education: 'Balancing Between
Patents Laws and Competition Law – Use of Economic Analysis to find Optimal Patent
Period';
• Assoc. Prof Burton ONG, National University of Singapore: 'Disputes arising from
Standard Essential Patent ownership and transactions: How big a role should the
competition law framework play?';
• Professor Toshiaki TAKIGAWA, Kansai University: 'Non-Assertion of Patent
Clause and Competition Law: A Comparative Analysis of the US, the EU, Japan and
China'

SESSION (E): IP Licensing in Asia
14:00-15:30
Chair: TBC
• Mr. Guy Lougher, Partner and Head of EU & Competition, Pinsent Masons:
'Impact of the Second Conduct Rule on licensing IP rights';
• Mr. Kentaro HIRAYAMA, Attorney at Law and Associate Professor, Tokyo
University of Science, Graduate School of Innovation Studies: 'Refusals to License
Intellectual Property – Cases and Guidelines in Japan';
• Mr. Kelvin KWOK, Assistant Professor at Law, University of Hong Kong and
Barrister-at-Law, Des Voeux Chambers: 'Refusal to License Intellectual Property
Rights under the Anti-Monopoly Law of China'
15:30-15:45 Break

SESSION (F): Information Networks and Competition
15:45-17:30
Chair: TBC
• Mr. Victor HUNG, Head of Planning and Trade Practices Division, Hong Kong
Consumer Council: 'Designing Anti-competitive Network Structure';
• Mr. Marcus BEZZI, Executive General Manager, Competition Enforcement,
Australia Competition and Consumer Commission: 'Tackling online vertical
restraints to enhance price competition'

• TBC
Second Day – Morning
8:30 – 9:00 Registration
9:00-9:20
• Prof. Caron BEATON-WELLS, The University of Melbourne, 'Global Competition
Law Education in an Online Environment'

SESSION (G): Innovation and Competition
9:20-10:45
Chair: TBC
• Dr. Steven VAN UYTSEL, Associate Professor, Kyushu University: 'Technologydriven
Innovation, Startups, and Competition Law: The Case of Japan';
• Mr. Emilio VARANINI, Deputy Attorney General of California State: 'Fostering
Innovation and Creativity in Labor and in Distribution via Competition Law in
California: Lessons for Asia for the 21st Century';
• Mr. Herbert FUNG, Director (Business and Economics), Competition
Commission of Singapore: 'Rebalancing Competition Policy to Stimulate Innovation
and Sustain Growth';
• Asst. Prof. Sandra MARCO COLINO, Faculty of Law, Chinese University of
Hong Kong: 'Digital Markets and Emerging Competition Regimes: the Case of Hong
Kong'.

10:45– 11:00 Break

SESSION (H): Technology and Market Analysis
11:00 – 12:30
Chair: TBC
• Dr. Angus YOUNG, Senior Lecturer, Department of Accountancy & Law, Hong
Kong Baptist University: 'Legal Technology Changing the Business of Law: New
Frontiers in Competition?'
• Prof Deborah HEALEY, Director, Corporate and Commercial LLM Programme,
Faculty of Law, University of New South Wales:
• TBC
• TBC
12:30 – 14:00

Lunch

Second Day – Afternoon

SESSION (I): China and Innovation Markets
14:00 – 15:30
Chair: TBC
• Prof. WANG Xiaoye, Institute of Law, Chinese Academy of Social Science: 'SEPs
and Competition Law – from Perspective of the Case of Huawei v. IDC';
• Dr. ZHU Jingwen, Registered Foreign Lawyer, Winston and Strawn: 'China's New
Rules on Antitrust and Intellectual Property Intersected Issues';
• Prof LIN Ping, Head and Professor, Director of Centre for Public Policy Studies
and Director of Master of Science in International Banking and Finance
Programme, Department of Economics, Lingnan University: 'Fair Competition
Review in High-Tech Industries in China: A Case Study'

15:30 – 15:45 Break

SESSION (J): Disruptive Technologies
15:45 – 17:20

Chair: TBC
• Mr. Hassan QAQAYA, Ex-UNCTAD: 'Competition Law and Innovation in the 21st
Century';
• Dr. Joseph WILSON, Former Chairman, Competition Commission of Pakistan,
McGill University: 'Regulated Industries and Disruptive Technologies: Role for
Competition Agencies';
• Prof. Allan FELS, Professorial Fellow, The University of Melbourne: TBC
• Mr. Andrew J. HEIMERT, Counsel for Asian Competition Affairs, Federal Trade
Commission: TBC

17:20 – 17:30
Closing Address
Prof. Mark WILLIAMS
Executive Director, ACF

November 10, 2016 | Permalink | Comments (0)

Is Bounded Rationality in Entry Decisions Necessarily Bad for Social Welfare?

Michal S. Gal, University of Haifa - Faculty of Law asks Is Bounded Rationality in Entry Decisions Necessarily Bad for Social Welfare?

ABSTRACT: In the chapter Boundedly Rational Entrepreneurs and Antitrust Professor Tor provides an excellent overview of the effects of bounded rationality on the behavior of entrepreneurs in the marketplace. In particular, he uses the recognized behavioral economics biases concerning overconfident beliefs and risk-seeking preferences in order to explain the excessively risky new entry that is prevalent in the market. This overview offers us a new and illuminating way, beyond our conventional assumptions, of recognizing the motivations behind market entry. Professor Tor then focuses on the social welfare effects of such boundedly rational entry. He argues that while irrational entrants generate social costs, excessively risky entry also brings about important social benefits, primarily due its association with innovation. The chapter then connects some of these insights to the realm of antitrust and offers several suggestions for its application. In this short note, I offer some observations that follow the three parts of the chapter.

November 10, 2016 | Permalink | Comments (0)

Aggregate Concentration: An Empirical Study of Competition Law Solutions

Michal S. Gal, University of Haifa - Faculty of Law and Thomas K. Cheng, The University of Hong Kong - Faculty of Law discuss Aggregate Concentration: An Empirical Study of Competition Law Solutions.

ABSTRACT: Competition law is generally focused on competition in a market. Yet, as recent economic studies have clearly indicated, one of the main sources of competition concerns of jurisdictions around the world is the impact of high levels of aggregate concentration in their markets, when a small group of economic entities controls a large part of the economic activity through holdings in many markets. High levels of aggregate concentration can significantly impact competition and welfare. On the one hand, conglomerates' substantial resources and varied experiences, as well as their economies of scale and scope, often enable them to enter markets more readily than other firms, especially when entry barriers are high. On the other hand, high levels of aggregate concentration raise significant competitive concerns. Most importantly, oligopolistic coordination in and across markets as well as entry barriers into markets might be increased. These effects, in turn, might lead to stagnation and poor utilization of resources, which adversely affect growth and welfare. Another major concern is a political economy one: given their size and economic heft, large conglomerates may attempt to translate their economic power into political power in order to create, protect and entrench their privileged positions. Given these effects, the paper attempts to explore the weight given- if at all- to aggregate concentration in the application of competition laws around the world. The analysis is based, inter alia, on the experiences of 35 different jurisdictions in dealing with aggregate concentration through competition law, based on a survey performed with the assistance of the UN Conference on Trade and Development.

November 10, 2016 | Permalink | Comments (0)

Boundedly Rational Entrepreneurs and Antitrust

Avishalom Tor, Notre Dame Law School; University of Haifa - Faculty of Law analyzes Boundedly Rational Entrepreneurs and Antitrust.

ABSTRACT: This chapter examines entrepreneurial activity and its implication for policy and antitrust law from a behavioral perspective. In particular, the analysis here focuses on the role of two sets of behavioral phenomena — overconfident beliefs and risk- seeking preferences — in facilitating boundedly rational entrepreneurship. Boundedly rational entrepreneurs may engage in entrepreneurial activity, such as the starting of new business ventures, under circumstances in which rational entrepreneurs would decline to do so. Consequently, overconfident or risk-seeking entrants compete with their more rational counterparts and create a postentry landscape that differs markedly from the picture assumed by traditional economic accounts of entrepreneurial activity. The behaviorally informed analysis of entry sheds new light on the dynamics of competition among entrepreneurs and on its implications for policy and antitrust law.

November 10, 2016 | Permalink | Comments (0)

Wednesday, November 9, 2016

The Complexity of Conversing About Entrepreneurship, Innovation, and Antitrust

Peter Carstensen, University of Wisconsin Law School describes The Complexity of Conversing About Entrepreneurship, Innovation, and Antitrust.

ABSTRACT: Laying out the competition policy issues relevant to the complex challenges of promoting entrepreneurship and innovation requires broad strokes and generalizations. Moreover, the range of issues invites confusion as to goals and terms. What is impressive about Bert Foer’s chapter is how well it covers the need for a common language to understand the competition policy issues that are given extensive and focused consideration in this book. In my view, one of the most important insights from the focus on innovation and entrepreneurship is that market dynamics make competition policy much more important but also much less certain. Moreover, positing a policy goal of promoting innovation and entrepreneurship affects how important parts of competition law should be interpreted. It also identifies a potentially significant role for competition policy as a means of defining the scope of other legal regimes that directly affect innovation.

November 9, 2016 | Permalink | Comments (0)

On the Merits of Antitrust Liability in Regulated Industries

Arup Bose, Indian Statistical Institute, Debashis Pal, University of Cincinnati, and David E. M. Sappington, University of Florida have an interesting paper On the Merits of Antitrust Liability in Regulated Industries.

ABSTRACT: We examine the merits of subjecting an incumbent supplier of regulated services to antitrust review. We show that antitrust review can harm consumers even when the review entails no direct costs of implementation. The harm to consumers arises in part because imperfect antitrust review can crowd out more effective regulatory oversight. More generally, antitrust review can usefully complement regulatory oversight but affects the nature of the optimal regulatory policy.

November 9, 2016 | Permalink | Comments (0)

Platform Architecture, Multihoming and Complement Quality: Evidence from the U.S. Video Game Industry

Carmelo Cennamo, Bocconi University - Department of Management and Technology, Hakan Ozalp, Ludwig Maximilian University of Munich - Institute for Strategy, Technology and Organization (ISTO), Tobias Kretschmer, Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management); Centre for Economic Policy Research (CEPR) discuss Platform Architecture, Multihoming and Complement Quality: Evidence from the U.S. Video Game Industry.

ABSTRACT: Multihoming – the decision to design a complement to operate on multiple platforms – is becoming increasingly common in many platform markets. Perceived wisdom suggests that multihoming is beneficial for complement providers as they expand their market reach, but it reduces differentiation among competing platforms as the same complements become available on different platforms. In a study of the US video game industry, we find that multihoming is not as simple as commonly assumed and that platforms, i.e. game consoles, differ in their attractiveness for multihoming complements, i.e. games. Specifically, we find that the complexity of a console reduces the quality performance of multihoming games so that the same game receives a lower quality score on a more complex platform than on a less complex one. However, games that are released on the complex platform with a delay or developed and marketed by a vertically integrated firm suffer a smaller drop in quality on complex platforms, while the use of standardized technological tools – middleware – does not help to attenuate the performance drop on complex platforms. This has important implications for managers considering expanding their reach through multihoming.

November 9, 2016 | Permalink | Comments (0)

Trump and Antitrust

What Does A Trump Victory Mean for Antitrust?  I have received emails from around the world in the past few hours asking me variations of this same question.  At the moment, I do not have a good answer.  Here is what I do know:

  • Donald Trump has been an antitrust plaintiff in the past.  Does this mean that he would favor a more robust system of private rights of action? I do not know. 
  • Peter Thiel, founder of Paypal and a speaker at the Republican convention has suggested that some amount of monopoly power is a good thing. Will he have a role in the new administration or influence in its economic approach with regard to competition issues?  I do not know.
  • Antitrust has been largely technocratic for a generation.  Changes across particular presidencies has not made a significant difference.  The framework has remained constant - economics based thinking to protect consumers and promote competition. Both parties have tackled government created restraints on trade and both parties have been active in efforts against cartels.  Case law has shifted both as to procedure and substance so that it has been difficult under either party to bring a monopolization case. Where there has been conflict, it has been on the margins - highly contested but at the margins.

For many people, myself included, this campaign has been divisive and emotional. Going forward, I hope Americans (and I am a naturalized U.S. citizen from Panama since April 12, 1994 - the first member of my family to become a U.S. citizen) of all political persuasions come together and build a United States based on what has made our country great - inclusion, innovation, entrepreneurship, respect for democratic values, and rule of law.  There are many highly capable Republicans who have served in the past and others who are waiting for a chance to make a positive difference.  My hope is that antitrust remains technocratic and that President elect Trump appoints good leaders for both the Department of Justice Antitrust Division and the Federal Trade Commission.  The world deserves no less.  

November 9, 2016 | Permalink | Comments (0)

So-called ‘soft law’ attempts to achieve convergent public enforcement tools: identifying the Achilles’ heel of the economic adjustment programmes in Ireland

Mary Catherine Lucey, UCD Sutherland School of Law has written on So-called ‘soft law’ attempts to achieve convergent public enforcement tools: identifying the Achilles’ heel of the economic adjustment programmes in Ireland.

ABSTRACT: The EU Commission’s ambitious ideal of convergent enforcement powers for National Competition Authorities has been pursued in a creative manner by deploying atypical instruments such as the Economic Adjustment Programmes (commonly known as financial bailout packages). These attempts were more successful in some Member States than in Ireland where domestic competition legislation enacted following the Programmes failed to confer the competence to impose civil/administrative fines. This article explores and explains the failure of the Programmes to achieve a convergent enforcement toolkit in Ireland. The Programmes’ description by the EU Commission as ‘soft law’ is challenged by contrasting their binding nature and effect with more familiar ‘soft law’ EU competition law measures. Nonetheless, a soft spot or ‘Achilles’ heel’ is identified in the Programmes’ monitoring of compliance with conditions which, this article suggests, resolves the conundrum as to why such cogent instruments failed to secure competence for Irish institutions to impose civil/administrative fines for infringements of EU competition law.

November 9, 2016 | Permalink | Comments (0)

Tuesday, November 8, 2016

Who Feeds the Trolls? Patent Trolls and the Patent Examination Process

Josh Feng, Harvard University, Department of Economics, Students and Xavier Jaravel, Harvard University; Stanford Institute for Economic Policy Research (SIEPR) ask Who Feeds the Trolls? Patent Trolls and the Patent Examination Process.

ABSTRACT: Leveraging random examiner assignment and detailed patent prosecution data, we find that non-practicing entities (NPEs) purchase patents granted by examiners that tend to issue incremental patents with vaguely-worded claims. In comparison, practicing entities purchase a very different set of patents, but assert patents similar to those purchased by NPEs. These results show that on average NPEs purchase and assert patents productive for litigation but lacking technological merit, thus adding to overall litigation fees without providing incentives for high-quality innovations. Their activities are in part the symptom of a broader problem with the issuance of ill-defined intellectual property rights, which leads to (likely inefficient) litigation even among practicing entities. A cost-benefit calibration shows that investments in improving examination quality at the United States Patent Office would have large social returns.

November 8, 2016 | Permalink | Comments (0)

Lawmaking Process and Non-Governmental Stakeholders in China's Anti-Monopoly Law

Yi Shin Tang, University of Copenhagen - Faculty of Law; University of Sao Paulo (USP) - Institute of International Relations describes Lawmaking Process and Non-Governmental Stakeholders in China's Anti-Monopoly Law.

ABSTRACT: China’s Antimonopoly Law has become frequently criticized for having been drafted to the detriment and oblivious to foreign competitors’ interests. This article explores this issue by providing an account of the lawmaking process of AML and identifying its main stakeholders, particularly regarding the influences of foreign and local industries.

November 8, 2016 | Permalink | Comments (0)

Exclusive Contracts and Bargaining Power

Hiroshi Kitamura, Kyoto Sangyo University, Noriaki Matsushima, Osaka University - Institute of Social and Economic Research, and Misato Sato, George Washington University - Graduate School of Economics analyze Exclusive Contracts and Bargaining Power.

ABSTRACT: This study constructs a simplest model to examine anticompetitive exclusive contracts that prevent a downstream buyer from buying input from a new upstream supplier. Incorporating Nash bargaining into the standard one-buyer-one-supplier framework in the Chicago School critique, we show a possibility that an inefficient incumbent supplier can deter a socially efficient entry through exclusive contracts.

November 8, 2016 | Permalink | Comments (0)

Churn Versus Diversion in Antitrust: An Illustrative Model

Yongmin Chen, University of Colorado at Boulder - Department of Economics and Marius Schwartz, Georgetown University have an interesting paper on Churn Versus Diversion in Antitrust: An Illustrative Model.

ABSTRACT: An important question in horizontal merger analysis is what share of a firm's lost output from a unilateral price increase will divert to its merger partner. This ‘diversion ratio’ is often estimated using data on customer switching from a firm to its rivals (‘churn’). We use a tractable oligopoly model to investigate the potential biases of such estimates, depending on what caused the churn: shifts in quality or marginal cost of the firm or of a rival; or demand‐side shifts due to changed circumstances or learning about product attributes. With demand‐side shifts, churn can be greater between more distant competitors.

November 8, 2016 | Permalink | Comments (0)

Monday, November 7, 2016

The Smallest Salable Patent-Practicing Unit (SSPPU): Theory and Evidence

Jonathan D. Putnam, Competition Dynamics, Inc. and Tim A. Williams, Beach Technologies, LLC identify The Smallest Salable Patent-Practicing Unit (SSPPU): Theory and Evidence.

ABSTRACT: In the recent past, U.S. courts have begun to require that litigating parties base patent infringement damages on sales of the “smallest salable patent-practicing unit,” or SSPPU, in an effort to constrain the patentee’s damages claim to the true “economic footprint” of the invention. We ask whether this legal requirement can be grounded in economic theory, industry licensing practices, or the scope of actual patent claims. We find significant theoretical reasons to reject the mandatory imposition of the SSPPU rule, because the economic impact of an invention is not, in general, limited to the sales price of an input that allegedly embodies it. In the telecommunications industry, where the SSPPU rule has assumed additional policy significance in the context of FRAND commitments by owners of standard-essential patents (SEPs), we find overwhelming evidence that: (1) major licensors and licensees reject the ostensible SSPPU — the baseband processor — as a royalty metering device, regardless of their place in the supply chain; and (2) for one representative patent portfolio, the scope of the claims cannot be limited to the baseband processor itself. In short, we find that the pricing of telecommunications inventions is not limited to the “smallest” component, nor are such components necessarily “salable,” or “patent-practicing.”

November 7, 2016 | Permalink | Comments (0)

Donald Turner's Merger Guidelines after 50 Years: Optimal Enforcement Through Selective Guidance for Critical Industries

Warren Grimes, Southwestern Law explores Donald Turner's Merger Guidelines after 50 Years: Optimal Enforcement Through Selective Guidance for Critical Industries.

ABSTRACT: The Antitrust Division of the Justice Department, under Donald Turner’s leadership, issued the first edition of the Merger Guidelines in 1968. Nearing their 50th anniversary, the Guidelines have evolved and survived, but not without criticism. Thresholds for what is considered a highly concentrated industry have been substantially relaxed, inviting merger to tight oligopoly in many industries. These conditions are of particular concern in critical industries: those that most directly affect our daily lives and involve creative or atomistic elements at one or more levels of the distribution chain. In many cases, small players are not only the most efficient way to provide services or products, but also are the preferred method for both sellers and buyers. Supported by retrospective analyses of the effects of mergers, I argue that over reliance on generic Merger Guidelines has contributed to the loss of competition in these critical industries. The strict concentration thresholds in the original Turner Guidelines were inappropriate for many industries (such as those in which substantial scale economies favored large firms) and were doomed to failure. Strict concentration thresholds in selectively identified industries, however, are necessary to protect competition where it most matters to consumers. Selective treatment of critical industries would lead not only to more competition and choices for consumers, but also to better quality of life and job satisfaction for upstream creative or atomistic providers. Selective agency guidance could take many forms, including possible industry-specific enforcement statements similar to those the agencies have issued for the healthcare industry.

November 7, 2016 | Permalink | Comments (0)

Is Uber Unconstitutional?

J. Gregory Sidak, Criteron Economics asks Is Uber Unconstitutional?

ABSTRACT: Uber’s online platform enables passengers to find drivers to arrange a ride. Uber has introduced a convenient and often cheaper alternative to the traditional taxi service. The traditional taxi industry has challenged Uber’s entrance into a market that previously had faced little competition due to regulatory barriers to entry. In the United States, the holder of a taxi medallion possesses the right to operate a taxi in the designated geographical area. Medallion holders have sued local regulators of taxi services, challenging their failure to impose on Uber obligations similar to those that taxis bear. Such lawsuits in Chicago and other cities have alleged that the regulator’s failure to require Uber drivers to obtain medallions violates the Takings Clause of the Fifth Amendment to the U.S. Constitution. The medallion holders argue that, by allowing Uber to offer de facto taxi services without medallions, local authorities have so impaired the medallion holders’ property as to cause a compensable taking of private property. That conclusion is false as a matter of both economic analysis and constitutional law. As an economic matter, to establish a deregulatory taking, one must prove: (1) the existence of a regulatory contract, (2) the presence of investment-backed expectations based on irreversible investment, (3) the elimination of a regulatory barrier to entry, and (4) a decline in the regulated firm’s expected revenues. Because the provision of taxi service requires little if any irreversible investment, for this reason alone the deregulation of the taxi industry cannot be a deregulatory taking. For many years, medallion holders benefited from a regulatory barrier to entry in the taxi industry enforced by the limited number of issued medallions. But with a business model based on an entirely new technology, Uber upended that equilibrium. As Justice Pitney said in 1917, no one has the right to insist that a law shall remain unchanged for his benefit. The claim that the City of Chicago has violated the Takings Clause by permitting Uber to operate in competition with taxicabs is baseless. The Uber litigation over taxi medallions reifies a rough justice in the Constitution’s treatment of rent seeking. On the one hand, the First Amendment’s right to petition government immunizes from antitrust liability a person’s sincere efforts to persuade the legislature to bar competitors from his market. On the other hand, if the statutory barrier to entry was never essential to eliciting the incumbent’s asset-specific investment to provide a public service by enabling the incumbent to recover its quasi-rents—that is, if the incumbent has reaped pure economic rent from a naked restraint of trade that legislators created at his (or his predecessor’s) behest—then the Takings Clause will not be read to entitle the incumbent to just compensation when a new technology evades that statutory barrier to entry and competes away the economic rent that it created for incumbents. To my knowledge, this symmetry between the First and Fifth Amendments is currently only implicit in the constitutional jurisprudence on rent seeking. The current Uber litigation will give the Seventh Circuit or the Supreme Court the opportunity to declare that symmetry explicitly.

November 7, 2016 | Permalink | Comments (0)

Friday, November 4, 2016

Pre-Competition

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.

November 4, 2016 | Permalink | Comments (0)

Cognitive Dissonance, Motivated Reasoning, and Confirmation Bias: Applications in Industrial Organization

Daniel F. Stone, Bowdoin College - Department of Economics and Daniel H. Wood, Federal Trade Commission explore Cognitive Dissonance, Motivated Reasoning, and Confirmation Bias: Applications in Industrial Organization.

ABSTRACT: Three concepts from psychology -- cognitive dissonance, motivated reasoning, and confirmation bias -- are perhaps surprisingly closely related, and have been used productively in a variety of fields in economics, more so over time. These concepts are relevant to the field of industrial organization as they help explain how consumer tastes and beliefs about product qualities are determined, change, are perceived and misperceived, and related firm responses. The concepts have been applied in existing industrial organization research, but to a limited extent, and we speculate that future work could benefit from applying these concepts more extensively.

 

 

November 4, 2016 | Permalink | Comments (0)