Antitrust & Competition Policy Blog

Enhancing leniency programme in public markets

Enhancing leniency programme in public markets

Penelope Alexia Giosa

Abstract

The article focuses on the leniency programme, the key mechanism to strengthen the public enforcement of competition law, and its compatibility with the debarment mechanism and self-cleaning measures, which are both procurement remedies. As the article will show, procurement remedies interfere with cartel enforcement and the debarment mechanism undermines leniency in public procurement. The fact that firms may be banned from bidding, where there are plausible indications for their participation in agreements aiming at distorting competition, discourages infringing companies from coming forward and self-reporting. Even the self-cleaning measures under the current procurement Directive 2014/24/EU, which aim to help debarred firms to avoid exclusion or minimize its risk, undermine leniency in public procurement. This is particularly true after the recent judgment of the European Court of Justice in c-124/17 Vossloh Laeis GmbH v Stadtwerke München GmbH case. In this case, it was held that a contracting authority must be able to ask a leniency applicant to provide the decision of the competition authority concerning it. This must apply even if there is a pending private action for damages for breach of competition law by the contracting authority against that leniency applicant. In view of the above conflicting policy objectives, a number of proposals are discussed in order to better align leniency programmes with the mechanism of debarment and self-cleaning policy in public procurement. In this way, the article contributes to the optimal design of enforcement policies.

The Recent Evolution of Physical Retail Markets: Online Retailing, Big Box Stores, and the Rise of Restaurants

The Recent Evolution of Physical Retail Markets: Online Retailing, Big Box Stores, and the Rise of Restaurants

Francine Lafontaine

University of Michigan at Ann Arbor - Stephen M. Ross School of Business; University of Michigan at Ann Arbor - Department of Economics

Jagadeesh Sivadasan

University of Michigan, Stephen M. Ross School of Business; University of Michigan at Ann Arbor - Survey Research Center

Abstract

We examine changes in the retail sector in the US over the period 1999 to 2017. While there were fewer physical stores in 2017 compared to the start of the period (consistent with the widely reported notion of a “retail apocalypse”), other indicators including employment, real sales, real value added and real payroll of brick and mortar retailers had recovered to their pre-Great Recession peaks by 2017. Consistent with anecdotal evidence, we document a negative impact of online commerce on physical retail during this period. In contrast, the growth in big box stores (which slowed in the aggregate after 2009) was positively correlated with the growth of other retail physical activity across counties. We document a striking rise in restaurants (NAICS 722), so that including them in the retail sector (as in the older SIC classification) yields much stronger trends for physical retail activity. We find this growth in restaurants was positively correlated with growth of other physical retail, so it was not propelled by a reduction in costs induced by the decline of other physical retail. Instead, we find suggestive evidence that two-thirds (one-half) of the growth in restaurant establishments (employment) can be attributed to the relative increase in consumer expenditure share for restaurant food. We briefly summarize emerging trends, and note significant venture capital funding for delivery and other services that may complement traditional physical retail stores. Preliminary analysis of the (short-term) impact of the ongoing COVID-19 pandemic shock shows a very negative impact on retail, and the particularly precipitous effect on restaurants raises concerns about the likely long-term effects of the COVID-19 crisis on many local communities.

Why There Is No Antitrust Case against Apple's App Store: A Response to Geradin & Katsifis

Why There Is No Antitrust Case against Apple's App Store: A Response to Geradin & Katsifis

Sven Voelcker

Latham & Watkins; University of Goettingen (Gottingen)

Daniel Baker

Latham & Watkins LLP

Abstract

Apple’s App Store has been a boon to app developers in Europe and throughout the world. The App Store offers a highly attractive sales and distribution channel allowing even the smallest start-up instant access to hundreds of millions of iOS users.

Nevertheless, various criticisms have been leveled against Apple’s App Store practices under European Union competition rules. We find that Apple has no case to answer. Apple is not dominant on any appropriately defined market, as developers have numerous other options for acquiring customers and distributing digital content, including other mobile app stores, as well as other channels to reach the users of Apple iOS devices (i.e., iPhones and iPads). Nor do we see any indication that the way Apple monetizes the App Store – i.e., the charging of a commission on developer sales of digital content to iOS users through the App Store – or the rules and policies that underpin this business model, could be characterized as exploitative, exclusionary or discriminatory abuses under Article 102 TFEU. Similarly, we see no evidence that Apple’s non-price-related practices, such as the privacy settings on iOS devices, Apple’s app review process, or the App Store search algorithm raise competition concerns. Apple’s commission and associated policies appear in line with numerous benchmarks, leave ample means for distribution through other channels, do not appear to correspond to any anti-competitive motive, and are readily explicable based on a legitimate desire to protect user privacy, obtain a reasonable return on Apple’s extensive investments in the App Store, and maximize the success of the iOS platform and ecosystem as a whole.

Minimum Efficient Scale: Towards a More Coherent Understanding of Special Responsibility and Competition on the Merits under Article 102 TFEU

Minimum Efficient Scale: Towards a More Coherent Understanding of Special Responsibility and Competition on the Merits under Article 102 TFEU

Xingyu Yan

Zhejiang University - Guanghua Law School

Hans H. B. Vedder

University of Groningen - Faculty of Law

Abstract

As two key concepts in the Article 102 framework, competition on the merits and special responsibility suffer from a lack of concretization. As a result, the competition on the merits concept may lead the abuse assessment into an illusion of inherent impropriety, whereas the special responsibility concept is susceptible to expansive interpretations that undermine the pivotal role of dominance in the Article 102 paradigm. These issues are shown in cases concerning exclusive dealing and exclusivity rebates. This article suggests using the as efficient competitor rationale — complemented by the no economic sense rationale — to distinguish competition on the merits and abuse with respect to exclusionary conduct. The distinction can be expressed as “efficiency-based versus non-efficiency-based exclusions”. Nonetheless, the limitations of the as efficient competitor test necessitate some calibrations. To that end and to give content to the special responsibility concept, this article spotlights the notion of minimum efficient scale, which has been somewhat overlooked and mis-characterized in the law enforcement. This concept deserves more appreciation in producing more coherent theories of harm under Article 102.

Behavioral Lessons for Antitrust Enforcement

Behavioral Lessons for Antitrust Enforcement

 

Avishalom Tor

Notre Dame Law School

Abstract

These are lecture slides to accompany a virtual lecture
(https://www.youtube.com/watch?v=S8RG50O1Vcw) that Avishalom Tor, professor and director of the Research Program on Law and Market Behavior at Notre Dame Law School, delivered to lawyers and economists of the Department of Justice’s antitrust division in Washington D.C. and throughout the country in the summer of 2020.

The lecture provides a systematic review of the lessons empirical behavioral findings offer to antitrust law, enforcement, and policy. Professor Tor introduces key findings of behavioral antitrust and explores their implications for doctrine and enforcement across the field, in areas
ranging from horizontal restraints, through market power and monopolization, to vertical restraints and merger policy. The lecture concludes by discussing how behavioral antitrust challenges the very foundations of antitrust law, followed by a Q&A session with the participants.

Productivity, Prices and Productivity in Manufacturing: a Demsetzian Perspective

Productivity, Prices and Productivity in Manufacturing: a Demsetzian Perspective

Sam Peltzman

University of Chicago, Booth School of Business; National Bureau of Economic Research (NBER)

Abstract

Concentration has increased since the 1980s in a variety of industries. Price-cost margins have also increased over this period. These developments have raised concern about weakened competition and resulting harm to consumers. Calls for tougher antitrust enforcement have become louder. Many years ago Harold Demsetz (1973) cautioned against inferring weakened competition from a confluence of rising margins and concentration. He argued that productivity differences across firms were a potential “omitted variable.” This paper provides evidence on the interplay between concentration, prices and productivity across several hundred US manufacturing industries over two 15 year periods from 1982-2012. The consistent pattern is that high and rising concentration has been on average associated with better productivity growth. Rising concentration has also been associated with widening margins of price-cost margins. I show that widening margins generally, whether related to concentration or not, are mainly driven by productivity gains, not prices. as in the competitive process outlined in Demsetz (1973). Some skepticism about tougher antitrust policy may be warranted, since this would risk harm to productivity without benefiting consumers.

Self-Preferencing: Yet Another Epithet in Need of Limiting Principles

Self-Preferencing: Yet Another Epithet in Need of Limiting Principles

Pablo Ibáñez Colomo

London School of Economics - Law Department

Abstract

Self-preferencing is central to contemporary competition law discussions, in particular in digital markets. This paper considers the meaning and scope of the label. It shows, first, that favoring an affiliate is, in itself, an expression of competition on the merits. Such conduct is typically linked to the very pro-competitive benefits that are expected from horizontal and vertical integration. Second, self-preferencing is not a sound category, whether from a legal or an economic perspective. It potentially applies to conduct that differs widely in its nature, purpose and effects. The scope of the category would range from traditional instances of tying, on the one hand; to cases that would demand a competition authority to interfere with the design of a product and/or a firm's business model, on the other.

Against this background, the use of self-preferencing as a category would require addressing some issues of principle. In the first place, it seems particularly necessary to ponder the substantive and institutional implications of abandoning indispensability as a filter limiting the exposure of the system to proactive intervention. In the second place, the need to preserve a robust assessment of effects comes across as particularly important.

DOJ ANtitrust Workshop - September 23-24 PROMOTING INNOVATION IN THE LIFE SCIENCE SECTOR AND SUPPORTING PRO-COMPETITIVE COLLABORATIONS: THE ROLE OF INTELLECTUAL PROPERTY

PROMOTING INNOVATION IN THE LIFE SCIENCE SECTOR AND SUPPORTING PRO-COMPETITIVE COLLABORATIONS: THE ROLE OF INTELLECTUAL PROPERTY

• Workshop Information
• Date and Virtual Attendance
• Workshop Agenda

WORKSHOP INFORMATION

This joint USPTO – Department of Justice program will focus on how patents and copyrights drive value in the life science sector and the effects of collaborations and partnerships, with specific attention paid to the antitrust implications of different cooperation and licensing strategies. There is no charge to attend the online program, but registration is required. 

There will be 10 sessions spread over two afternoons. Panelists and speakers include leading figures from government, academia, prominent research labs, and legal experts from the private sector. The first day will start with a fireside chat between USPTO Director Andrei Iancu and Assistant Attorney General for the Antitrust Division Makan Delrahim. The second day will feature a keynote address by former Director of the National Institutes of Health Dr. Elias A. Zerhouni.

DATE AND VIRTUAL ATTENDANCE

September 23, 2020 1:00p.m. – 5:00p.m. EST September 24, 2020 1:00p.m. – 5:20p.m. EST

The program is free and open to the public. For more information, visit the registration page or contact Lakeisha Harley in the USPTO’s Office of Policy and International Affairs.  A detailed agenda will be posted in the near future.

PROGRAM AGENDA

September 23, 2020

Session I: The essential roles of patents in research and development of therapeutics, diagnostics, and vaccines, particularly during pandemics

Session II: Update on USPTO guidance on patentability of life science inventions

Session III: Life Science Patents in Practice Panel Discussion I: Are changes to US patent law needed to better support innovation in life sciences and the development of COVID-19 solutions?

Session IV:  Copyright and innovation in the life sciences Panel Discussion II:  How copyright can create incentives or barriers to building data or information pools, and related licensing

September 24, 2020

Session V: Collaboration and Licensing Strategies

Session VI: How do regulation and antitrust enforcement impact competition and incentives for innovation?

Session VII: Competition and collaboration: Examining competitive effects and antitrust risks associated with collaborations

Session VIII: Academics’ and economists’ views on collaboration and competition

Relative Performance Evaluation, Sabotage and Collusion

Relative Performance Evaluation, Sabotage and Collusion

 

Matthew J. Bloomfield

The Wharton School of the University of Pennsylvania

Catarina M. P. Marvão

Technological University Dublin; Stockholm School of Economics - Stockholm Institute of Transition Economics (SITE)

Giancarlo Spagnolo

Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF

Abstract

We examine whether the potential for costly sabotage is a deterrent to firms’ use of relative performance evaluation (“RPE”) in CEO pay plans. We exploit illegal cartel membership as a source of variation in the potential for costly sabotage and document that firms are more likely to use RPE if they are currently cartel members. Moreover, firms frequently drop RPE from their CEOs’ pay plans immediately after their cartels are detected, convicted and punished. We further provide suggestive evidence that the potential for costly sabotage explains these patterns; cartel membership severs the empirical association between RPE and competitive aggression.

New Data on Private U.S. Antitrust Enforcement

From the AAI press release:

The American Antitrust Institute (AAI) and the University of San Francisco School of Law (USF Law) released a commentary (Commentary) on a new annual report examining antitrust class actions in federal court from 2009 to 2019. The 2019 Antitrust Annual Report (2019 Report) finds that cases settled since 2009 have recovered more than $24 billion on behalf of victims of antitrust violations. The 2019 Report, which expands on last year’s 2018 Antitrust Annual Report (2018 Report) was jointly produced by USF Law and Huntington National Bank.

Shelving or Developing? The Acquisition of Potential Competitors Under Financial Constraints

Shelving or Developing? The Acquisition of Potential Competitors Under Financial Constraints

 

Chiara Fumagalli

Università Bocconi

Massimo Motta

Universitat Pompeu Fabra

Emanuele Tarantino

University of Mannheim - Department of Economics; Tilburg Law and Economics Center (TILEC)

Abstract

We analyse the optimal policy of an antitrust authority towards the acquisitions of potential competitors in a model with financial constraints and asymmetric information. With respect to traditional mergers, these acquisitions trigger a new trade-off. On the one hand, the acquirer may decide to shelve the project of the potential entrant. On the other hand, the acquisition may allow for the development of a project that would otherwise never reach the market. We first show that a merger policy does not need to be lenient towards acquisitions of potential competitors to take advantage of their pro-competitive effects on project development. This purpose is achieved by a strict merger policy that pushes the incumbent towards the acquisition of potential competitors lacking the financial resources to develop their project independently. An equivalent rule would consist in blocking takeovers whose acquisition price is above a certain threshold. However, we also show that, if the anticipation of a takeover relaxes the target firm's financial constraints, a more lenient merger policy, which allows for the acquisition of firms that have already committed to enter the market, may be optimal. We identify the cumulative conditions necessary for this to be the case. They include the presence of pronounced financial imperfections. Hence, the more developed financial markets, the more likely that a stringent merger policy will be optimal.

Yale Law Journal submission cycle closing

The Yale Law Journal has asked me to post the following on their submission cycle:

Submissions for Vol. 130 will close on Sept. 23rd. We encourage authors with Articles and Essays to submit their pieces well before the close of submissions. We are no longer accepting submissions of Features, Book Reviews, and Forum.

Yale Law Journal, Submissions:

To submit, please use our online submissions system. 

SUBMISSION GUIDELINES

• Authors submitting Articles, Essays, Features, and Book Reviews should refer to our General Submission Guidelines. ...

The Journal’s Style Guide is available here.

The Journal’s Empirical Work Policy is available here.

ARTICLES AND ESSAYS

The division between these two forms of professional scholarship serves not merely to separate longer pieces from shorter ones, but also to encourage two distinct and complementary approaches to legal analysis.

• Articles devote substantial space to situating themselves within existing research, and they often frame their arguments as comprehensive analyses of a given subject.
• Essays are often narrower in scope than Articles, but the subject matter is of general scholarly interest. Essays may experiment with style, tone, and voice. The ultimate goal of an Essay is to start a new and interesting scholarly conversation.

The Articles & Essays Committee reviews submissions without knowledge of the identity of the authors. We do not review Articles or Essays written by current J.D. students at Yale Law School, or by authors who were J.D. students at Yale Law School at any time during Volume 130’s submissions window. hen to submit Articles and Essays to YLJ, please click here.

For our policy on exploding offers, please click here.

The Distribution of Surplus in the US Pharmaceutical Industry: Evidence from Paragraph iv Patent-Litigation Decisions

The Distribution of Surplus in the US Pharmaceutical Industry: Evidence from Paragraph iv Patent-Litigation Decisions

In paragraph iv pharmaceutical cases, a patent-litigation decision often determines whether a brand-firm monopoly continues or generic entry occurs. Using unique patent-litigation data and an event-study approach that accounts for probabilistic district court decisions and an appellate process, we estimate that brand-firm stakes in such cases average $4.3 billion while generic-firm stakes average $204.3 million. After the Schering-Plough v. FTC decision in 2002 that upheld a settlement in which the brand firm paid the generic firm in return for delayed entry, we find that settlement is more likely and stakes are significantly lower, despite greater average brand sales for the drugs in the cases. On the basis of this evidence, we conclude that pay-for-delay settlements led to less within-market competition after 2002.

Entry Deterrence, Concentration, and Merger Policy

Entry Deterrence, Concentration, and Merger Policy

Gopal Das Varma

Charles River Associates (CRA)

Martino De Stefano

Charles River Associates

Abstract

Likelihood of entry is considered to be a mitigating factor in the analysis of a merger’s competitive effects. Entry analyses in horizontal merger investigations typically focus on the incentives and ability of potential entrants to enter the market and restore its competitiveness in the event the merger creates anti-competitive effects. There is, however, a well-developed body of research in economics – both theoretical and empirical – that explores the incentives of incumbent firms to proactively engage in entry deterrence, say, by lobbying an industry regulator to adopt rules that make entry harder. We show that the increased concentration that results from a merger can increase incumbent incentives to deter entry, making the likelihood of entry less than that predicted by only an analysis of a potential entrant’s incentives and ability. Two important policy implications for merger investigations are: (i) prior entry – which is taken as an indication of ease of post-merger entry – may be of limited evidentiary value, and (ii) reduced likelihood of post-merger entry can be a competitive concern in its own right and not simply a mitigating factor with regards to traditional merger effects like increase in prices or loss of innovation.

Competition, Innovation and the Use of Innovations

Competition, Innovation and the Use of Innovations

 

George Symeonidis

University of Essex - Department of Economics; Centre for Economic Policy Research (CEPR)

Abstract

I examine the effect of competition on the production and use of innovations using evidence from a natural experiment of policy reform, the introduction of cartel legislation in the U.K. in the late 1950’s. I compare manufacturing industries which had been collusive and were therefore affected by the policy with those that had been competitive and were not affected. The intensification of competition following the abolition of cartels caused a short‐run decrease in innovations produced, but had no significant effect in the long run. In contrast, innovations used increased both in the short run and in the long run.

Switching Costs, Brand Premia and Behavioral Pricing in the Pharmaceutical Market

Switching Costs, Brand Premia and Behavioral Pricing in the Pharmaceutical Market

 

Aljoscha Janssen

Singapore Management University; Research Institute of Industrial Economics (IFN)

Abstract

This article examines the market power of branded prescription drugs faced with generic competition. Using prescription-level and matched socioeconomic panel data of the entire Swedish population between 2010 and 2016, I provide evidence for the key role of switching costs. A discontinuity surrounding patent expirations establishes that the effect is causal. Further, by comparing patients with and without medical education, I show that those without medical education experience higher brand premia. A unique feature of the Swedish market allows me to rule out patients' inattention due to information costs as a source of market power. Therefore, switching costs and perceived quality differences are the key determinants of market power. I then estimate a dynamic oligopoly model with forward-looking firms which is used in counterfactual studies of the effect of switching costs and perceived quality differences on prices. First, an increase in the length of procurement mimics a reduction of switching costs and increases prices. While the effect of switching costs on prices in theory is ambiguous, moderate switching costs and sufficient competition for new patients increase competitive pressure. Second, if everyone acts as a medical expert and experiences fewer brand premia, prices decrease.

Price Dynamics of Swedish Pharmaceuticals

Price Dynamics of Swedish Pharmaceuticals

 

Aljoscha Janssen

Singapore Management University; Research Institute of Industrial Economics (IFN)

Abstract

This paper investigates price patterns of off-patent pharmaceuticals in Sweden. I show that price dynamics are dependent on the number of competitors in the market. The price patterns follow predictions from a model of dynamic price competition in which the demand for pharmaceuticals incorporates the known biases of consumers: habit persistence and brand preferences. Using the regulated market of Swedish pharmaceuticals, I show that price dynamics may help in identifying possible tacit collusion by manufacturers in markets where consumers experience behavioral frictions.

Nursing Home Competition, Prices and Quality: A Review and Some Lessons for Australia

Nursing Home Competition, Prices and Quality: A Review and Some Lessons for Australia

 

Jongsay Yong

University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Ou Yang

University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Anthony Scott

University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Abstract

In recent years, with the aim of containing cost pressure and improving efficiency, many countries have begun to introduce market mechanisms into the aged care sector. Under the right conditions, competition can spur providers to compete by cutting costs, offering better prices and higher quality of services. However, in aged care, market failures can be severe. Information about prices and quality may not be readily available and search costs can be high. This study undertakes a scoping review of the literature on competition in the nursing home sector, with an emphasis on research examining how competition affects prices and quality of care. Online databases were used to identify studies in English language published between 1988–2020. A total of 44 publications covering nine countries are included in this review. On the relationship between competition and quality, the literature offers conflicting evidence. Some studies find greater competition leading to higher quality, while others find the opposite effect. Institutional features such as the presence of binding supply restrictions on nursing homes and public release of information on quality appear to be important considerations. On the price effect of competition, most studies find that greater competition tends to result in lower prices, although the effect is small. The literature offers several lessons for Australia, including whether increasing subsidies can result in higher quality and the role of public reporting of quality ratings in fostering competition.

FTC Announces further merger retrospectives

See here for the news story.  This is great news.  Forward looking policy should be guided my rigorous studies of what has worked and not worked in prior mergers across industries.  A lot of time we have pundits who give what seem to be non-representative anecdotes either for or against certain mergers.  Some of the most meaningful work that the FTC did in the 1980s was serious studies of all sorts of economic behavior.  In the 2000s, its healthcare merger retrospective led to tremendous positive changes in shaping good cases and shifting case law to thwart of anticompetitive consummated and proposed hospital mergers.  To do that it needs an adequate budget.       

Vertical Exclusion with Downstream Risk Aversion or Limited Liability

Vertical Exclusion with Downstream Risk Aversion or Limited Liability

 

Stephen Hansen

Imperial College Business School

Massimo Motta

Universitat Pompeu Fabra

Abstract

An upstream firm with full commitment bilaterally contracts with two ex ante identical downstream firms. Each observes its own cost shock, and faces uncertainty from its competitor’s shock. When they are risk neutral and can absorb losses, the upstream firm contracts symmetric outputs for production efficiency. However, when they are risk averse, competition requires the payment of a risk premium due to revenue uncertainty. Moreover, when they enjoy limited liability, competition requires the upstream firm to share additional surplus. To resolve these trade‐offs, the upstream firm offers exclusive contracts in many cases.