Antitrust & Competition Policy Blog

The Law and Economics of Non-Exclusionary Price Floors

The Law and Economics of Non-Exclusionary Price Floors

Dennis Weisman

Kansas State University - Department of Economics

Abstract

This paper integrates two separate branches of the law and economics literature to demonstrate the two-sided risk of market exclusion by a vertically-integrated firm (VIF) with upstream and downstream market power. The ratio of downstream (retail) to upstream (wholesale) price margins is key to the analysis. A margin ratio that is “too low” can result in a vertical price squeeze. This occurs when a relatively efficient rival cannot secure the bottleneck input at a price that enables it to compete in the downstream market. A margin ratio that is “too high” creates incentives for the VIF to engage in non-price discrimination (sabotage). By raising its rivals’ costs, and in turn it downstream price, the VIF can divert demand from its rivals to itself. Displacement ratios delineate the range of safe harbor margin ratios within which neither form of market exclusion arises. The admissible range of these margin ratios is decreasing in the degree of product substitutability and reduces to a single ratio in the limit as the competing products become perfect substitutes. The challenge for policymakers is to apply these pricing constraints judiciously to prevent market exclusion in accordance with a consumer-welfare standard, while recognizing the risk that these protections can be appropriated and used strategically in the errant pursuit of a competitor-welfare standard.

COMPETITION LAW, CLIMATE CHANGE & ENVIRONMENTAL SUSTAINABILITY

COMPETITION LAW, CLIMATE CHANGE & ENVIRONMENTAL SUSTAINABILITY

Simon Holmes, Dirk Middelschulte, Martijn Snoep

BOOK ABSTRACT

The consensus is clear - climate change is the defining challenge of our time. Meeting this challenge requires a collaborative and inclusive response from all segments of society - including private businesses. What role then for competition law and policy?

This important and timely book gathers academics, enforcers, economists, lawyers, and industry representatives to explore the applications and limitations of EU competition law in achieving environmental sustainability aims in line with the European Commission’s Green Deal as well as the UN’s Sustainable Development Goals. They identify the challenges of integrating environmental considerations into competition analysis presented by the existing framework, whether through cooperation by businesses, practices by dominant companies, or consideration of sustainability efficiencies in merger assessments. Practical examples across various sectors are also provided, alongside agency views from different jurisdictions, to illustrate how competition policy can facilitate a sustainable economy.

Interface between Competition Law and Patents Law: A Pandora Box

Interface between Competition Law and Patents Law: A Pandora Box

Mansee Teotia

Amity University

Manish Sanwal

Anand and Anand

Abstract

The interface between Intellectual Property Rights and Competition Law has remained a moot point in several jurisdictions including India. There have been conflicting views regarding powers of the Competition Commission to exercise its jurisdiction over Patentee’s right to exclude his/her competitors from using its patented technology. This question again came up before the Hon’ble High Court of Delhi in a recent case of Monsanto v Competition Commission of India. Though the court in the instant case tried to clarify the issue with regard to the conflict of powers between the Competition Commission of India and Power of the Controllers of the Indian Patent Office, there were various issues which were overlooked by the Court. Due to the lack of specific guidelines regarding how to deal with the interface between Competition Law and Patents Law, the issues are settled by the courts on case to case basis. Through this paper, the authors look into the issue of how this interface is dealt with in other jurisdictions such as US and EU. Unlike India, in US and EU guidelines are issued by respective governments regularly in order to solve any possible conflict between Competition Laws and Patent Laws. Through this paper the author suggests for providing such guidelines so as to allow and maintain the delicate balance between Patent Law and Competition Law.

Vertical Mergers and Input Foreclosure: Lessons from the AT&T/Time Warner Case

Vertical Mergers and Input Foreclosure: Lessons from the AT&T/Time Warner Case

Carl Shapiro

University of California, Berkeley - Haas School of Business

Abstract

This article offers a practical guide to analyzing vertical mergers using the general approach to input foreclosure and raising rivals’ costs described in the 2020 Vertical Merger Guidelines issued by the Department of Justice and the Federal Trade Commission. The step-by-step analysis described here draws lessons from how that theory of harm played out in the lone vertical merger case litigated by the antitrust agencies in recent decades, namely the 2018 challenge by the Department of Justice to the merger between AT&T and Time Warner. I testified in court as the DOJ’s economic expert in that case, giving me a unique perspective. I explain here how to quantify the increase in rivals’ costs and the elimination of double marginalization caused by a vertical merger and how to evaluate their net effect on downstream customers. I also explain how this economic analysis fits into the three-step burden-shifting approach that the courts apply to mergers under Section 7 of the Clayton Act. Based on my experience in the AT&T/Time Warner case, I identify a number of shortcomings of the 2020 Vertical Merger Guidelines.

Brexit and Competition Law

Brexit and Competition Law

Barry Rodger, Andreas Stephan

Book Description

This book provides the first comprehensive analysis of the immediate and likely longer-term consequences of Brexit for the UK’s competition law regime and includes the competition and subsidy control provisions of the EU-UK Trade and Cooperation Agreement. It has been written to be of value to scholars and practitioners of competition law, whilst also providing a useful guide to readers with only limited understanding of competition rules. The book provides a detailed critical discussion of how Brexit impacts on five key aspects of competition policy in the UK: legislation, institutions and cooperation; antitrust rules that prohibit anti-competitive agreements and the abuse of a dominant position; private enforcement, in particular actions for damages; regulation of mergers and acquisitions; and State aid or subsidy control rules.　

THE ANTITRUST MARKET DOES NOT EXIST: PURSUIT OF OBJECTIVITY IN A PURPOSIVE PROCESS

THE ANTITRUST MARKET DOES NOT EXIST: PURSUIT OF OBJECTIVITY IN A PURPOSIVE PROCESS

Magali Eben 

ABSTRACT

There is no such thing as an ‘antitrust market’. Markets are merely analytical tools, which serve to structure available evidence and enable a comprehensive answer to a particular question. They do not exist as such in the real world but are figments of our intellectual imagination. In that capacity, they can be immensely useful. A pursuit of objectivity in the process of product market definition remains in vain as long as we fail to acknowledge that the utility of antitrust markets lies precisely in their reductive and purposive nature. This article makes two main arguments. The first argument is simple, yet far-reaching: antitrust market definition is useful because it is a method to enable the answer to a question. The implication is that the market is defined by reference to that particular question, rather than as an independent and neutral object. Market definition is ‘purposive’. In the context of competition investigations, this question can concern, but does not have to be limited to, determinations of market power. The second argument is that market definition, even though purposive, does not need to be subjective. Objectivity in market definition can be achieved by aspiring to process objectivity, rather than to objective outcomes.

Dynamic Oligopoly Pricing with Asymmetric Information: Implications for Horizontal Mergers

Dynamic Oligopoly Pricing with Asymmetric Information: Implications for Horizontal Mergers

Andrew Sweeting, Xuezhen Tao & Xinlu Yao

We model differentiated product pricing by firms that possess private information about serially-correlated state variables, such as their marginal costs, and can use prices to signal information to rivals. In a dynamic game, signaling can raise prices significantly above static complete information Nash levels even when the privately observed state variables are restricted to lie in narrow ranges. We calibrate our model using data from the beer industry, and we show that our model can explain changes in price levels and price dynamics after the 2008 MillerCoors joint venture.

Abuse of Dominance in Digital Markets: Can Amazon’s Collection and Use of Third-Party Sellers’ Data Constitute an Abuse of a Dominant Position Under the Legal Standards Developed by the European Courts for Article 102 TFEU?

Abuse of Dominance in Digital Markets: Can Amazon’s Collection and Use of Third-Party Sellers’ Data Constitute an Abuse of a Dominant Position Under the Legal Standards Developed by the European Courts for Article 102 TFEU?

Vladya M K Reverdin

 

ABSTRACT: 

• Amazon collects and uses vast amounts of data from third-party sellers (‘TPS’), which enable the company to leverage its dominant position from the market for online marketplace services to multiple downstream markets.

• There are growing concerns that vertically integrated dominant online platforms, which favour their own activities, can produce anticompetitive effects.

• Amazon’s conduct does not fit precisely with the case law on Article 102 TFEU.

• Stretching the legal standards developed for margin squeezes to the self-preferencing conduct of Amazon is the most reliable path to hold the undertaking liable.

• Many uncertainties persist on how to assess the conduct of dominant online platforms such as Amazon’s self-preferencing, and which legal standards to apply must be clarified by the European Courts.

Balancing Disclosure and the Protection of Confidential Information in Private Enforcement Proceedings: The Commission’s Communication to National Courts

Balancing Disclosure and the Protection of Confidential Information in Private Enforcement Proceedings: The Commission’s Communication to National Courts

Konstantina Strouvali, Efstathia Pantopoulou 

ABSTRACT:

• Disclosure of evidence and protection of confidentiality are two aspects of private enforcement proceedings that by definition are in tension.

• The Communication further builds on the rules of the Damages Directive to address this. It sets out a number of practical issues that a national court could consider for selecting effective measures to protect confidentiality when ordering the disclosure of evidence.

• The Communication seeks to contribute to a more efficient handling of disclosure issues by national courts to the benefit of parties and national judges.

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.