Antitrust & Competition Policy Blog

AI Regulation in the European Union and Trade Law: How Can Accountability of AI and a High Level of Consumer Protection Prevail over a Trade Discipline on Source Code?

AI Regulation in the European Union and Trade Law: How Can Accountability of AI and a High Level of Consumer Protection Prevail over a Trade Discipline on Source Code?

Kristina Irion

University of Amsterdam

Abstract

Artificial Intelligence (AI) applications can bring many benefits for consumers, as well as influence consumer behaviour and the choices they make. On a large scale AI can profoundly transform consumer markets by, for example, enabling fully personalised consumer transactions on a population-wide scale. AI-powered consumer services rapidly diffuse across the global digital ecosystem thereby connecting consumers in the European Union (EU) to business operating from outside the EU. Individuals who are at the receiving end of AI systems must be reassured that these technologies operate in a way that respects fundamental and consumer rights.

In the current negotiations on electronic commerce at the World Trade Organisation (WTO), the EU supports the introduction – in the legal text – of a clause which prohibits the participating countries to introduce – in their national laws – measures that require access to, or transfer of, the source code of software, with some exceptions. This is a cause for concern for experts and rights advocates, as such a clause – if not carefully conditioned – can prevent future EU regulation of AI that may be harmful to consumers.

The Federation of German Consumer Organisations (Verbraucherzentrale Bundesverband – vzbv) has commissioned this study from the Institute for Information Law (IViR) at the University of Amsterdam, in order to shed light on the cross-border supply of AI technology and its impact on EU consumer rights.

This study forms a comprehensive understanding of this issue that intersects three different areas: (1) emerging EU governance of AI and (2) the application of EU consumer protection law to AI with (3) the EU’s position in the WTO electronic commerce negotiations. This study concludes that the source code clause within trade law indeed restricts the EU’s right to regulate in the field of AI governance in several important ways.

A new version of the Antitrust Paradox is Out

See here.

 

When Does Algorithmic Pricing Result In an Intra-Platform Anticompetitive Agreement or Concerted Practice? The Case of Uber In the Framework of EU Competition Law

When Does Algorithmic Pricing Result In an Intra-Platform Anticompetitive Agreement or Concerted Practice? The Case of Uber In the Framework of EU Competition Law

Hubert Bekisz

 

• Uber argues that its drivers remain independent contractors rather than workers.

• Following this assumption, intra-platform agreements between Uber and each of Uber drivers concerning Uber’s algorithmic pricing should be subjected to Article 101 TFEU. One may assess them as a hub-and-spoke arrangement where Uber orchestrates a horizontal price-fixing cartel of Uber drivers, or a series of vertical agreements between Uber and each Uber driver.

• To ensure compliance with Article 101 TFEU, Uber should either recognise its drivers as workers, or adjust its pricing algorithm by allowing drivers to set the fares for their rides freely.

Dynamic Merger Policy and Pre-Merger Investment: Equilibrium Product Choice by an Entrant

Dynamic Merger Policy and Pre-Merger Investment: Equilibrium Product Choice by an Entrant

Richard Gilbert

University of California, Berkeley

Michael L. Katz

University of California, Berkeley - Department of Economics; Haas School of Business

Abstract

We examine the effects of merger and merger policy on a potential entrant’s pre-merger investment incentives. We establish conditions under which the possibility of merger can induce an entrant to inefficiently imitate an incumbent’s product instead of innovating with a more differentiated product. Turning to policy, current practice is to evaluate a proposed merger by focusing on post-merger effects (e.g., whether the merged firm will charge higher prices or invest less in innovation than would the two firms if they remained independent of one another). We show that policies focused solely on a proposed merger’s ex post welfare effects can induce an entrant to choose an inefficient direction for its pre-merger investment, either because doing so maximizes the profits of a merger that would be approved regardless of the direction of its efforts, or because the nature of the approval process itself distorts incentives with respect to the direction of pre-merger investment.

Break up Facebook? That would just create more bad (and fake) news

Carl Shapiro (Berkeley) asks Break up Facebook? That would just create more bad (and fake) news

 

On the Bright Side of Market Concentration in a Mixed-Oligopoly Healthcare Industry

On the Bright Side of Market Concentration in a Mixed-Oligopoly Healthcare Industry

Michele Bisceglia

University of Bergamo - Department of Management, Economics and Quantitative Methods; University of Toulouse 1 - Toulouse School of Economics (TSE)

Jorge Padilla

Compass Lexecon

Salvatore Piccolo

Compass Lexecon

Pekka Sääskilahti

Compass Lexecon

Abstract

We describe the healthcare industry as a mixed oligopoly, where a public and two private providers compete, and examine the effects of a merger between two private healthcare providers on prices, quality, and consumer surplus. When the price and quality of the public provider are regulated, the cost synergies required for the merger to increase consumer welfare are less significant than in a setting with only profit-maximizing providers. When, instead, the public provider can adjust its policy to the rivals' behavior and maximizes a weighted sum of profits and consumer surplus (i.e., it has 'semi-altruistic' preferences), we find that the merger is consumer surplus increasing if the public provider is sufficiently altruist, in some cases even absent efficiencies. These results suggest that ignoring the role and objectives of the public sector in the healthcare industry may lead agencies to reject mergers that, while would decrease consumer welfare in fully privatized industries, would increase it in mixed oligopolies.

UK Merger Control: Finely tailored but time for a new suit?

UK Merger Control: Finely tailored but time for a new suit?

 

David Reader

Newcastle University

Abstract

The introduction of the Enterprise Act 2002 formally ended a much-maligned public interest approach to merger control in the UK, oft-criticised for the uncertainty permeated by ministerial decision-making. In its place came a new competition-based test to be applied by independent competition authorities with new powers and resources at their disposal. Despite initial teething problems related to the interpretation of the statute and several instances of fine-tuning to tighten up enforcement powers, the reforms have succeeded in delivering one of the most transparent and business-friendly merger regimes in the world. But new challenges lie in wait. The caseload implications posed by Brexit, heightened calls for public interest interventions, and the novel theories of harm associated with mergers in the digital sector all stand to test the limits of the existing legal and institutional model, such that further fine-tuning and tailoring may no longer be sufficient to yield a mergers system that is fit for purpose. This chapter reflects on key developments in the evolution of UK merger control under the Enterprise Act and, drawing o

Anything You Can Do, I Can Do Better - Except in Big Tech?: Antitrust's New Inhospitality Tradition

Anything You Can Do, I Can Do Better - Except in Big Tech?: Antitrust's New Inhospitality Tradition

Elyse Dorsey

George Mason University - Antonin Scalia Law School, Faculty

Abstract

Today, the question of how competition is—or is not—functioning in the big tech space has become a particularly compelling topic. The last several years have seen an increasing popular interest in antitrust, and it appears that wave of interest may soon be cresting. Rhetoric has grown increasingly aggressive, and the list of alleged ills is long. Companies are simply too big, too influential, too powerful; they are destroying our democracy and undermining our social values. While allegations run the gambit, under particular attack are tech firms that operate in multiple, complementary markets.

This critical rhetoric is eerily similar to that of a bygone era of antitrust enforcement—namely, the time when the inhospitality tradition prevailed. By the middle of the 20th century, antitrust courts routinely—often summarily—condemned any contract or behavior they deemed to be nonstandard or unusual. This approach reflected an extreme hostility to firm behavior—a hostility that seems to be making a resurgence today— and led to the coining of the phrase “inhospitality tradition” to describe the prevailing antitrust regime. The inhospitality tradition often led to incoherent, nonsensical outcomes. Courts condemned conduct that made firms better competitors in the name of preserving competition. And they ignored the actual or likely competitive effects of conduct before them because they found the form of that conduct offensive. The courts eventually abandoned this approach. As economic learning advanced and court experience grew, the negatives of condemning as per se unlawful large swaths of firm conduct on the basis of its form—rather than its effects—crystalized and could no longer be ignored. From this new economic learning, economists and scholars came to realize that many procompetitive reasons can, and often do, underlie much of the conduct that had been summarily condemned. And they learned that judging the conduct on its face, much like judging a book by its cover, tended to yield inferior outcomes.

Part I of this Article delves into the history of the inhospitality tradition within antitrust law, tracing its rise and demise. Part II explicates the apparent resurgence of hostile sentiment, particularly as applied to the tech context. Part III then investigates whether there is evidence of a market failure in big tech. Part IV analyzes what may—or may not—be warranted given the current state of the empirical literature.

Why We Can Expect More Competition among European Low Cost Carriers Post-Pandemic

Why We Can Expect More Competition among European Low Cost Carriers Post-Pandemic

Hanxiang Zhang

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies

Achim I. Czerny

Hong Kong Polytechnic University - Faculty of Business

Wolfgang Grimme

German Aerospace Center

Hans-Martin Niemeier

University of Bremen

Abstract

This study considers the network development of the three largest European Low Cost Carriers (LCCs) easyJet, Ryanair and Wizz Air during the pre-pandemic period and the pandemic period. Network developments are characterized in terms of the route numbers, city-pair numbers, frequencies, market sizes in terms of GDP, and network overlaps. The LCC flight networks maintained in the pre-pandemic period and the pandemic period and especially the peak month August are compared to derive insights on the intensity of LCC competition in Europe. Competition is considered as most intense on routes or origin-destination city pairs which are maintained in parallel by airlines. The results indicate that LCC network overlaps were growing substantially at the end of the pre-pandemic period and especially during the pandemic period. Wizz Air increasingly expanded their network and/or diverted flights into markets that had already been served by Ryanair and easyJet. The development of network overlaps during the pandemic is considered as an indicator for the intensity of the competition among LCCs in Europe after the pandemic.

Exploitative Abuse of a Dominant Position: A Bad Idea That Now Should Be Abandoned

Exploitative Abuse of a Dominant Position: A Bad Idea That Now Should Be Abandoned

Gregory J. Werden

Abstract

Exploitative abuse of a dominant position is a long-recognized category of infringements of what is now Article 102 TFEU. Article 102’s prohibition originated in the EEC Treaty, which broke down barriers and prohibited restraints on competition so the free market could reign. But every exploitative abuse case is a breach of faith in the market. And punishing exploitative abuse weakens the rule of law: No rule or standard controls, so potential infringers have no way to know what is expected of them. Exploitative abuse should be abandoned, and this essay argues that doing so would not disrespect the text of Article 102, ignore the intentions of the EEC Treaty’s drafters, or undermine any stated goal of the Treaty.

The Short Term Impact of COVID-19 on Brick-and-Mortar Retailers: Evidence from Retailtech

The Short Term Impact of COVID-19 on Brick-and-Mortar Retailers: Evidence from Retailtech

Pinar Yildirim

University of Pennsylvania - The Wharton School

Abstract

The novel coronavirus 2019 (COVID-19) pandemic, the associated stay-at-home orders, and consumers’ desire to physically distance from crowds dramatically impacted brick-and-mortar retailers. This paper documents the impact of COVID-19 on the retail traffic of physical stores. Using data from 49,712 stores, 484 retail chains, and 20 retail product categories in the United States, we compare same-store traffic on matching days of 2019 and 2020. Controlling for the changes in operating hours of stores and local pandemic conditions, we find that the stay-at-home orders resulted in 64.7% decline in consumer traffic on average between March 1st and July 29th. Consumer traffic declined in all the 20 retail categories we study, but the decline was heterogeneous across product categories. Whereas home and office goods were less negatively impacted, apparel, sporting, gift, and department stores suffered the most. Store operating hours declined by 2.5 hours daily between March 2019 to the end of July 2020, on average. Consumers also changed their shopping habits such that, shopping moved to weekdays from weekends and to earlier hours of the day rather than the afternoon and evening hours. These findings suggest that as working-from-home practices become more common place and the pandemic lingers, retailers will need to make significant structural changes to their operations.

Not from Concentrate: Collusion in Collaborative Industries

Not from Concentrate: Collusion in Collaborative Industries

Jordan M. Barry

University of San Diego School of Law

John William Hatfield

University of Texas at Austin

Scott Duke Kominers

Harvard University

Richard Lowery

University of Texas-Austin

Abstract

It is a core principle of antitrust law and theory that reduced market concentration lowers the risk of anticompetitive behavior. We demonstrate that this principle is fundamentally incomplete.

Traditional models assume that firms interact only as competitors. We examine and model “Collaborative Industries,” which afford rival firms opportunities to meaningfully collaborate. For example, in some industries, firms compete to win business, but then work together to complete production (e.g., through subcontracting). Firms in Collaborative Industries have powerful ways to reward or punish each other beyond raising or lowering the prices they offer to customers. These mechanisms create much greater scope for collusion than economic models conventionally recognize.

We show that Collaborative Industries can sustain anticompetitive collusive behavior no matter how unconcentrated the industry becomes. In some instances, lower market concentration makes collusion easier; smaller firms may be more dependent on collaboration with rivals and thus may be easier to punish if they undercut collusion. These results run directly counter to the conventional wisdom, gleaned from models of non-Collaborative Industries, that permeates antitrust law.

Vertical Control

Vertical Control

Herbert Hovenkamp

University of Pennsylvania Carey Law School; University of Pennsylvania - The Wharton School; University College London

Abstract

Antitrust litigation often requires courts to consider challenges to vertical “control.” How does a firm injure competition by limiting the behavior of vertically related firms? Competitive injury includes harm to consumers, labor, or other suppliers from reduced output and higher margins.

Historically antitrust considers this issue by attempting to identify a market that is vertically related to the defendant, and then consider what portion of it is “foreclosed” by the vertical practice. There are better mechanisms for identifying competitive harm, including a more individualized look at how the practice injures the best placed firms or bears directly on a firm’s ability to reduce output and increase its price without losing so many sales that the price increase is unprofitable.

Forced Choice vs. Inertia? An Exploratory Analysis of Choice Screens Applied in the European Microsoft Antitrust Case

Forced Choice vs. Inertia? An Exploratory Analysis of Choice Screens Applied in the European Microsoft Antitrust Case

Omar Vásquez Duque

Stanford University, School of Law, Students; Stanford University, Department of Economics, Students

Abstract

In March 2010 Microsoft started displaying a choice screen including the 12 most widely-used web browsers that run on Windows. The screen was presented only to Windows users whose default web browser was Internet Explorer (IE). This remedy was imposed after an antitrust investigation, in which the European competition authorities accused Microsoft of extending its monopoly from the operative system market to the web browsers market by including IE as Windows’ default application. The choice screen affected the European Economic Area, Croatia, and Switzerland.

After March 2010, when the choice screen started operating, IE’s market share did go down. It is easy to attribute IE’s decay in Europe to the choice screen. Yet, considering publicly available data from StatCounter, a common trend among developed countries is quite noticeable. IE’s market share was going down before the choice screen was put in place in Europe. In fact, IE’s decay, which continues in the following years, is also evident in the U.S., Australia, Canada, among many other countries where choice-screens were not implemented. A differences-in-differences analysis shows that when considering these other jurisdictions as a control group to assess the effect of the choice screen on IE’s market share decay, the impact of the intervention is negligible. When the U.S. serves as the control group, the choice-screen leads to a decrease in IE’s market share between 1.1% and 2.2%, depending on the time-frame considered for the pre-post assessment, and only the difference of 2.2% with a 6-month time-frame is statistically significant. However, when considering the average of the U.S., Canada, and Australia as the control group, the impact of the choice screen is between 0.3% and 1.2% and not statistically significant.

This preliminary finding invites us to critically assess how sticky default applications can be. Consumers have become more sophisticated 25 years after the first U.S. Microsoft case. Thus the theory of harm and the remedies that are thought to address consumers’ inertia should be re-examined, especially what types of consumers may stick to the default applications; whether the choice-screen design has been ineffective; as well as the reach of choice screens.

Douglas H. Ginsburg Remarks on the Consumer Welfare Standard, On the Occasion of Receiving the John Sherman Award from the Antitrust Division Department of Justice

Douglas H. Ginsburg Remarks on the Consumer Welfare Standard, On the Occasion of Receiving the John Sherman Award from the Antitrust Division Department of Justice

Douglas H. Ginsburg

George Mason University - Antonin Scalia Law School, Faculty; U.S. Court of Appeals for the District of Columbia Circuit

Abstract

Remarks on the Consumer Welfare Standard On the occasion of receiving the John Sherman Award from the Antitrust Division Department of Justice

Prosocial Antitrust

Prosocial Antitrust

Amelia Miazad

University of California, Berkeley - School of Law

Abstract

Antitrust law is at the center of today’s public debate. It has even emerged as a rare unifying force, with bipartisan promises to combat the concentration of economic power, starting with breaking up Big Tech.

Meanwhile, the business and investment community is grappling with mounting systematic risks arising from the pandemic, climate change, income inequality, and racial injustice. Unexpectedly, the largest asset managers in the world find themselves on the front lines of these battles. Due to the rise of index investing, these “universal owners” manage portfolios that are so large and diversified, their holdings mirror the entire economy. Their diversification protects them against idiosyncratic risk, but greatly exposes them to these systematic risks.

The universal owners are keenly aware of their exposure to these systematic risks. They are turning to their portfolio companies and increasing demands on directors and managers to “serve a social purpose” and reduce their negative externalities. Public-regarding pronouncements from CEOs of Wall Street’s biggest firms ring hollow to many shareholder primacy loyalists. But the skeptics are missing the economic logic underlying this paradigm shift—diversified shareholders do not want companies to externalize their negative impacts onto the rest of the investors’ portfolios.

Many companies are rising to the challenge and making bold commitments. However, many are recognizing that, to satisfy pervasive social and environmental challenges, they must collaborate with their competitors. This Article reveals that current antitrust law is a barrier to this collaboration and offers a policy proposal for aligning antitrust law with the demands upon the prosocial corporation.

The COVID-19 pandemic has taught us that we are all interconnected. Climate change will continue to deepen that understanding. The problems we face are difficult, but they are not insurmountable. To solve them, we must value collaboration at least as much as we value competition.

Tech Giant Exclusion

Tech Giant Exclusion

John B. Kirkwood

Seattle University School of Law

Abstract

Critics claim that Amazon, Apple, Google, and Facebook are monopolies that crush smaller competitors. Antitrust has failed to control them because it asks only whether consumers have been hurt, not whether small firms have been devastated or the political system corrupted. The only solution, the critics assert, is to break up the tech giants. This diagnosis is mistaken. While the tech giants have excluded rivals, the proper approach is not to break them up but expand the law to reach their conduct.

The tech giants compete with third parties selling on their platforms and sometimes take steps to disadvantage them. They demote them in search results, use confidential information about specific sellers to copy their products, or expel them because they are rivals. But because these tactics rarely, if ever, lead to monopoly power, they do not violate the Sherman Act. This gap should be closed.

The tech giants should not be broken up. Splitting them into smaller versions of themselves would raise prices or reduce quality for consumers. Preventing them from selling their own products on their platforms would deprive consumers of products they value. Likewise, the goals of antitrust law should not be changed. Its fundamental aim is to protect consumers and small suppliers from anticompetitive conduct. If courts also had to preserve small business and curb the political influence of large firms, the goals of antitrust would conflict. Courts would have no objective way of balancing them, the deterrent effect of antitrust enforcement would be blunted, and consumers and workers would be hurt.

Congress should amend the Sherman Act to prohibit exclusionary conduct that significantly reduces competition, whether or not it results in monopoly power or a dangerous probability of monopoly power. To minimize the impact on procompetitive conduct, the change should apply only to the tech giants and should contain strict proof requirements. But by exposing the tech giants to an array of sanctions, it would substantially reduce the incidence of unwarranted exclusion.

Which Sustainability Agreements Are Not Caught by Article 101 (1) TFEU?

Which Sustainability Agreements Are Not Caught by Article 101 (1) TFEU?

David Wouters 

 

Key points

• The Commission should provide legal certainty on the issue of sustainability agreements if the European Union wants its Green Deal to be taken seriously.

• Sustainability agreements that are unlikely to be caught by Article 101 (1) TFEU (Treaty on the Functioning of the European Union).

• Sustainability agreements that might fall under Article 101 TFEU but are defensible to not ultimately fall under Article 101 (1) TFEU.

• Status of the current initiatives and opportunities de lege ferenda.

Antitrust Criminalization as a Legitimate Deterrent

Antitrust Criminalization as a Legitimate Deterrent

The Cambridge Handbook of Competition Law Sanctions, Tóth (ed) (Cambridge University Press, Forthcoming)

Peter Whelan

University of Leeds

Abstract

A global trend towards the criminalisation of cartel activity can be detected at present. What was once primarily a US phenomenon has become an international one, with countries as diverse as Israel, Brazil, and Australia pursuing a policy of cartel criminalization. The existence of criminal cartel sanctions in such countries is invariably justified as a necessity to ensure an effective competition policy. This paper aims to explain the primary (theoretical) justification for the use of criminal cartel sanctions (namely, economic deterrence) and to evaluate some of the inherent, challenging problems associated with such sanctions when used to achieve the aim of deterrence of anticompetitive behaviour in practice. In doing so it seeks to provide some insights into how best to ensure that cartel criminalisation improves the effectiveness of a criminalised regime’s competition policy. The paper is divided into two substantive sections. The first part outlines in detail the deterrence-based theoretical justification for criminal cartel sanctions, thereby providing essential context to the discussion that follows it. The second part of the paper critically analyses two important inherent problems that arise when criminal sanctions (i.e., custodial sentences) are used in order to deter cartel activity: the difficulty of securing efficient competition law enforcement when criminal cartel sanctions are employed; and the need for connecting the criminalised cartel activity to morally wrongful behaviour. Following the analysis of these problems, some concise observations are offered on the intersection of competition law and criminal justice.

The Leniency Rule Revisited: Experiments on Cartel Formation with Open Communication

The Leniency Rule Revisited: Experiments on Cartel Formation with Open Communication

 

Maximilian Andres

University of Potsdam

Lisa Bruttel

Humboldt University of Berlin

Jana Friedrichsen

Humboldt University of Berlin - Faculty of Economics; WZB Berlin Social Science Center; German Institute for Economic Research (DIW Berlin)

Abstract

The experimental literature on antitrust enforcement provides robust evidence that communication plays an important role for the formation and stability of cartels. We extend these studies through a design that distinguishes between innocuous communication and communication about a cartel, sanctioning only the latter. To this aim, we introduce a participant in the role of the competition authority, who is properly incentivized to judge communication content and price setting behavior of the firms. Using this novel design, we revisit the question whether a leniency rule successfully destabilizes cartels. In contrast to existing experimental studies, we find that a leniency rule does not affect cartelization. We discuss potential explanations for this contrasting result.