Friday, September 29, 2023
Beyond "Horizontal" and "Vertical": The Welfare Effects of Complex Integration
Margaret Loudermilk; Gloria Sheu; Charles Taragin
We study the welfare impacts of mergers in markets where some firms are already vertically integrated. Our model features logit Bertrand competition downstream and Nash Bargaining upstream. We numerically simulate four merger types: vertical mergers between an unintegrated retailer and an unintegrated wholesaler, downstream "horizontal" mergers between an unintegrated retailer and an integrated retailer/wholesaler, upstream "horizontal" mergers between an unintegrated wholesaler and an integrated retailer/wholesaler, and integrated mergers between two integrated retailer/wholesaler pairs. We find that mergers that have both horizontal and vertical characteristics typically harm consumers. We apply the model to the Republic/Santek merger as a real-world example.
September 29, 2023 | Permalink
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Thursday, September 28, 2023
If an antitrust fine has been imposed on a company, the question of managerial recourse liability arises. We present court cases from the Netherlands, the UK, and Germany, in part denying managerial liability and claiming that it would undermine the fines’ deterrent effect. We analyse whether managerial liability should be limited or banned to prevent, on the one hand, the company or its shareholders being under-deterred or, on the other hand, the company’s management being over-deterred. Regarding the former, we argue that a ban of managerial liability – which would have to be accompanied by a ban on any other type of internal financial sanction – would take an indispensable governance instrument out of the hands of shareholders. This holds true despite the availability of D&O insurance. Regarding the latter, we identify risks of overdeterrence but also see mitigating mechanisms at work. We conclude that, while a restriction on managerial liability may be regarded a reasonable measure, this should be viewed as lying within the discretion of company law legislation and jurisprudence but not as a mandatory implication of antitrust fining laws.
September 28, 2023 | Permalink
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Wednesday, September 27, 2023
The most pressing debates in antitrust today center on major platforms like Amazon, Google, and Facebook. Platform markets are subject to strong network effects, which tend to create barriers to entry and reinforce market power. Frequently, the only way for a new platform to enter the market successfully is to differentiate itself from the leading incumbent in some way—often by offering exclusive content or features. However, recently some dominant platforms have attempted to prevent this by entering into a novel type of “most favored nation” (MFN) agreement with trading partners. Unlike traditional MFNs, which restrain pricing, these MFNs prohibit trading partners from offering any exclusive content, features, or other services to smaller platforms.
These new MFNs are the subject of numerous ongoing lawsuits and regulatory probes involving major platforms, including Amazon. But they have not previously been examined in academic research. This article evaluates the novel antitrust issues they raise. The primary concern is that these MFNs may allow a dominant platform to forestall competitive entry by restraining the ability of new platforms to differentiate themselves. This is consistent with research in economics indicating that exclusive dealing can help to facilitate entry in network industries. I discuss some key differences between these restraints and traditional price-based MFNs, and I identify some key errors in recent judicial decisions evaluating them.
September 27, 2023 | Permalink
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Tuesday, September 26, 2023
Local homebuilding markets have become highly concentrated in the past decade. We document this increase in concentration and use IV regressions to show that it has led to lower production volume, fewer units in the production pipeline, and greater unit price volatility. These results are consistent with a theoretical model in which oligopolistic firms strategically set the timing, volume, and price of their new construction. Our estimates imply that market concentration has decreased the annual value of housing production nationwide by $106 billion. These findings provide further evidence that the secular decline in competitive intensity is altering macroeconomic dynamics
September 26, 2023 | Permalink
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Monday, September 25, 2023
Warren S. Grimes
Addressing growing income inequality in the United States should begin with the plight of low-skilled workers, many subject to below subsistence income and stressful and dangerous working conditions. Antitrust cannot offer a comprehensive solution to this problem. It can, however, meaningfully contribute to a solution in two ways. The first is to adjust the classic definition of monopsony to address the special conditions that apply to unskilled labor markets and clear away obstacles to meritorious antitrust claims. Under classic theory, a monopsonist lowers input prices causing some input providers to stop supplying. That premise, while it may hold for some labor markets, does not accurately describe the world of unskilled labor. Numerous historical and contemporary examples show that employers can shift the supply curve, allowing them to employ workers at low wages while increasing both labor input and downstream output. Failure to recognize this reality can hamper legitimate antitrust claims that protect unskilled and other disadvantaged workers. Possible lower prices and increased output for downstream consumers should not be a defense for genuine anticompetitive abuses of workers.
There is a second and vital change needed to improve wages and working conditions for low skill workers: to eliminate antitrust conspiracy claims as a bar to reasonable collective action by workers facing an employer’s monopsony power. Allowing worker collectives to exercise reasonable countervailing power against a powerful employer is the central purpose behind labor laws that permit unions. Unions have lost much ground in the past half century. The issue needs to be revisited to empower unskilled and other workers, including independent contractors, options beyond unionization to bargain on more equal terms on wages and working conditions. The federal enforcement agencies can contribute to positive development of labor monopsony law through guidelines and rulemaking.
September 25, 2023 | Permalink
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Friday, September 22, 2023
Recent evidence on the rise in markups has attracted considerable attention on potential causes and explanations. In a decomposition exercise, De Loecker et al. (2020) find that a large portion of the economy-wide increase in aggregate markups is due to the reallocation term: larger growth of the higher markup firms relative to the average. We revisit this finding and evaluate how much of the firm size increase is due to internal growth and how much is due to acquiring other companies through mergers and acquisitions. Utilizing a comprehensive dataset of M&A activity over the last 40 years, we find that 60 percent of the reallocation term and 38 percent of the overall markup increase is due to merger activities. The merger and acquisition effect on markups grows considerably after 1999, coinciding with aggregate patterns of M&A activities. Manufacturing and information industries account for the large portion of the aggregate pattern. We further document that the merger activities also impact acquirer markups.
September 22, 2023 | Permalink
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Thursday, September 21, 2023
Addressing climate change requires an unprecedented amount of collaboration. Investors, civil society actors, and NGOs recognize this, and are creating alliances to support collaborative climate governance. The scale of these investor alliances is massive–just consider Climate Action 100+, which represents 700 global investors with over $68 trillion of assets under management.
Investor alliances provide a necessary forum for collaborative governance of climate change, a systemic risk to the economy. Given their unique promise, and the urgency of addressing climate change, we should foster investor alliances. Yet, their fate hangs in the balance. A growing number of attorneys general have launched antitrust investigations of investor alliances, referring to them as “climate cartels”. Likewise, federal lawmakers have argued that investor alliances are “collusive” and violate antitrust laws.
This Article argues that investor alliances are different from traditional industry collaborations and require a tailored antitrust approach. It introduces policy roadmap for aligning investor alliances with antitrust, and hopes to spark scholarly focus on antitrust and collaborative climate governance.
September 21, 2023 | Permalink
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Wednesday, September 20, 2023
One of the major institutional developments in antitrust enforcement and competition policy over the first term of the Biden Administration has been a return to an active policy-setting role by the Presidency. This short piece describes those changes, puts them i
September 20, 2023 | Permalink
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Tuesday, September 19, 2023
Monday, September 18, 2023
This chapter aims to disentangle and elucidate several normative concerns that we may have about price personalization, or the imperfect individuation of prices for consumers based on a variety of features that sellers know about them, such as their purchasing history, income or wealth, location, and browsing history. Initially, I consider the demands and normative potential of transparency. I consider the nature of any deception, the kind of information that sellers fail to disclose that they ought to disclose, and the justification for any duty to disclose it. I conclude that sellers do have a duty to disclose certain facts about price personalization. Nevertheless, individual consent to transactions fails to launder the practice not just because consent is likely to be defective in some important ways but also because some of the problems with personalization are social harms and injustices that individuals do not have the power to make permissible by way of their consent.
I consider three such harms in turn. First, price personalization might violate or undermine privacy. The practice could violate individual privacy if seller use of data improperly entails usurping control over information that is properly controlled by its subjects, or because personalization uses certain kinds of information against the subject’s own interests. Price personalization might undermine privacy systemically because it creates incentives to collect information about personal characteristics that we do not control and to use that information in a social sphere that we want to keep insulated from the effects of those personal characteristics. Alternatively, personalization might undermine privacy in our society if it subjects certain private behaviors to scrutiny and consequences that will constrain or simply skew our choices in ways that we regard as undesirable.
Second, personalization might produce regressive distributive effects along several axes: from consumers to sellers; new or small sellers to large, established sellers, and; weak consumers to strong consumers. It might also segment markets in ways that exacerbate the social consequences of inequaltiy.
Finally, price personalization might run afout of a default principle of equal treatment in the marketplace absent socially defensible justification.
September 18, 2023 | Permalink
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Friday, September 15, 2023
Thursday, September 14, 2023
We test the overarching hypothesis that financial institutions face relatively milder fines due to financial stability concerns. To do so, we use an event study approach on a sample of 441 listed cartel members prosecuted by the European Commission between 1998 and June 2020. Our results suggest that banks face a positive effect on their market value upon the dawn-raid and the announcement of the cartel fine, whereas both events negatively (and significantly) affect non-banks. Using a novel measure of “harm”, we show that this positive effect is not driven by the resolution of uncertainty, but is rather a consequence of “too big to fine” concerns.
September 14, 2023 | Permalink
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Wednesday, September 13, 2023
Dennis W. Carlton
This article traces out the implications of how preexisting market distortions affect the magnitude of the harm from making an error in antitrust enforcement. This article applies well-accepted logic from cost-benefit analysis to show that pro-competitive mergers—or indeed any pro-competitive activities—produce benefits that could be substantially underestimated if one were to ignore the presence of preexisting distortions. Conversely, an anti-competitive activity produces harm that could be substantially underestimated by an analysis that ignores preexisting distortions. These observations are especially relevant today as recent research has shown that the level of market power at the product level has increased, perhaps substantially, since the 1980s. On the buying side, there has been a growing recognition of the importance of monopsony power, especially in the labor market. These observations suggest that an analysis of mergers or other conduct must consider the costs and benefits of actions in a world with preexisting distortions. The conclusion is that antitrust matters more than one might otherwise think and therefore there are large costs to abandoning or de-emphasizing economic principles, as some have suggested, since the use of economics should lead to fewer errors.
September 13, 2023 | Permalink
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Tuesday, September 12, 2023
Antitrust law addresses conspiracy, or collaborative conduct, more harshly than it does unilateral conduct. One person acting alone can get away with far more than groups of firms acting by agreement. In most cases that distinction is justified. Creating substantial market power unilaterally is difficult and relatively uncommon, but it can be created in a moment’s time by an agreement among firms.
But how do antitrust tribunals determine when conduct is unilateral rather than collaborative? Often the ansawer is obvious, but sometimes it is not. Two statutory provisions were intended to be the umpire of such decisions. A section of the Sherman considered so important that it was re-enacted in the Clayton Act provides that corporations and associations authorized by state law should be treated as “persons,” or single actors. The provisions address the core problems about internal corporate structure, including the single-entity status of holding companies, the legitimacy or not of suits between shareholders or employees and their firm, or the status of professional associations. The fact that the Sherman Act’s corporate personhood provision was re-enacted virtually verbatim in the Clayton Act is significant, because the intervening quarter century had witnessed a fierce debate over the power and reach of the business corporation. The statutory definitions do not include natural persons but they must be there by implication, because the Sherman Act includes prison sentences among its punishments and only biological persons can go to prison.
The personhood provisions are incomplete, however. While corporations and wholly owned subsidiaries are clearly a single person, the provisions fail to account for many situations where the precise boundaries of the corporation become ambiguous, including partial ownership, stock holders with independent business interests, or disloyal agents. Nor do they provide a solution to the problem of how to address labor disputes between an employer and its own employees. Further, and inadvertently, the statutes have encouraged certain types of industry structures that are not mandated by good competition policy, including the tendency to merge in order to avoid harsh rules about collusion, and the tendency to integrate vertically by ownership even when contractual integration might be superior.
September 12, 2023 | Permalink
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Monday, September 11, 2023
Personal data, and with it, information privacy, has become a commodity in the United States. More specifically, the data we generate, as well as the data generated about us, are raw materials bought and sold on information markets. This was not an inevitability but was instead an ideological choice based on a system of market fundamentalist principles within which the U.S. technology industry has flourished. As privacy problems have emerged alongside, and because of, these technologies, we have often sought market-focused solutions, including a recent body of scholarship examining the interplay between privacy and antitrust, which explores how U.S. competition law and policy could be used to regulate the treatment of our digital data and protect our privacy. Under these competitive market models, privacy is either seen as a factor over which firms can compete, or possibly as a source of legal friction that must be weighed against other competition-related interests.
Due to privacy’s fundamental importance, both to the self as well as collectively, the laws necessary to preserve and protect deserve to stand on their own merits as legal doctrine rather than depend on external or unrelated principles. Further, when in tension with other policy considerations, privacy should not be absorbed as an afterthought, but its value should be accorded the weight it requires. Antitrust law can play a useful supporting role in the protection of privacy, but its application should come with the recognition that while power is a common denominator between competition law and privacy law, much of privacy’s value lies outside of market-oriented mechanisms.
This Article argues that the use of antitrust as a tool for privacy regulation is flawed by an implicit assumption—and acceptance— of commodified privacy. Significant privacy power imbalances exist, but their roots come not from a lack of market competition, but from an inherent contradiction between privacy’s fundamental importance and a market-focused ideology. Subjecting privacy to market mechanisms and values is corrosive to individual and societal norms and tends to force much of this social cost on individuals who are often left without the ability, means, or agency to engage on fair terms within these markets. Further, because privacy power imbalances can originate not just between firms but within them, regulating privacy predominantly through an antitrust lens can in fact exacerbate these inequities.
September 11, 2023 | Permalink
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Friday, September 8, 2023
After relying almost exclusively on case-by-case adjudications to prohibit “unfair methods of competition” (UMC), the Federal Trade Commission recently made its first modern foray into competition rulemaking. In early 2023, it proposed a rule that would ban virtually all noncompete clauses in employment contracts as “unfair methods of competition,” in violation of Section 5 of the FTC Act. The Commission based its notice-and-comment rulemaking authority on Section 6(g) of the Act. Whether the grant of rulemaking authority under that provision extends to substantive, as opposed to merely procedural, rules has been the subject of debate for some time, and the debate has only intensified after the U.S. Supreme Court decided West Virginia v. EPA in 2022.
This essay briefly addresses Section 6(g); I have argued elsewhere that, under a textualist interpretation, the rulemaking authorization granted in that provision should be inclusive of substantive competition rules. I also examine the Major Questions Doctrine (MQD) articulated in West Virginia, and consider its implications on FTC competition rulemaking in general and on regulation with respect to noncompete clauses in particular. The essay explains my conclusion that the doctrine is not a game-changer on the basic question of whether Section 6(g)’s grant of rulemaking authority extends to substantive rules as a general matter – that question, on its own, simply should not qualify as a major question. Though the doctrine could place limits on the content of any substantive rules that the agency may permissibly promulgate, I explain why agency issuance of UMC rules governing noncompete clauses should not automatically raise a “major question” – the subject does not have the novelty, political significance, or other indicia of a major question to trigger West Virginia’s clear statement rule. This essay does not address whether the specifics of the FTC’s proposed rule—an across-the-board categorical ban on virtually all noncompetes--and various alternatives, included in the Notice of Proposed Rulemaking, might involve a major question.
September 8, 2023 | Permalink
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Thursday, September 7, 2023
The European Commission’s plan for new Guidelines on Article 102 TFEU, announced in March 2023, is most welcome. While the European Commission’s accomplishments in enforcing Article 102 TFEU are undisputed, the new Guidelines need to address the problems of enforcement in recent years. The consumer welfare standard only played a minor role with Article 102 TFEU, the effects based approach in its current form proved inefficient and novel cases could not be dealt with under the old framework of the Guidance.
To bring competition law up to date and make Article 102 TFEU future-proof, we recommend:
• to dispose of the loaded notion of “consumer welfare” and “direct consumer harm” and instead acknowledge the plurality of goals in competition policy, including autonomy of market actors and innovation;
• to redesign the effects-based approach, including a better balance of the costs involved;
• to introduce a list of “naked restraints” and clearer criteria for identifying abusive practices.
The European Commission needs to be aware that the standards set must also be manageable in private enforcement of stand-alone claims, based on Article 102 TFEU.
The discipline of economics continues to develop new ideas. The case material changes - phenomena like climate change and the digital revolution will bring about new cases. New Guidelines on Article 102 TFEU must therefore enable an evolution and a constant integration of new tools and new cases.
September 7, 2023 | Permalink
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Wednesday, September 6, 2023
Jonathan B. Baker
An unsympathetic Supreme Court threatens U.S. antitrust reform. This paper illustrates the problem by focusing on the holdings and dicta of two 21st century Supreme Court decisions, Verizon v. Trinko and Ohio v. American Express (Amex). In interpreting these decisions, some read Trinko to discourage antitrust liability for unilateral refusals to deal, and to welcome monopolies while not welcoming antitrust enforcement. Some read Amex to articulate a defendant-friendly approach to applying the rule of reason, to presume that vertical conduct promotes competition, and to condition liability on output reduction. This paper explains why these interpretations are variously incorrect, inappropriate, or troubling. It also discusses litigation strategies for persuading lower courts to limit the practical effect of these decisions and thereby pave the way for the Supreme Court to narrow them, procedurally or substantively, or overrule them.
September 6, 2023 | Permalink
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Tuesday, September 5, 2023
Steven C. Salop
The consumer welfare standard is damaged goods. Its days are numbered. My choice for a replacement is the “Reasonable Competitive Conduct” (“RCC”) standard. The RCC is a hybrid standard that shares some concerns and features of these other standards, including a concern about dominating firms, recognition of trading partner welfare as well as consumer welfare, while reflecting Sherman Act language, and the spirit of the Clayton and FTC Acts. The RCC standard places emphasis on the evidentiary facts and standards that would lead to conduct being condemned. One prong of this basic approach suggests a possible limited statutory antitrust exemption to permit certain groups of small market participants (whether independent contractor workers, input suppliers, or small firms that buy inputs) - whose counter parties are powerful, dominating firms – to countervail the bargaining power of the dominating firms by forming “joint negotiation entities” (JNEs) to engage in collective bargaining. The proposal limits the formation and scope of JNEs so that not only are the members benefitted, but downstream consumers also gain. Thus, there is no conflict between the members of the JNE and downstream consumers.
September 5, 2023 | Permalink
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Monday, September 4, 2023
Anca D. Chirita
This chapter advances a novel hybrid concept of abuse of consumer data, alongside algorithmic price discrimination and consumer data combinations, which have negative exclusionary and exploitative welfare effects on the fundamental freedom of business action and consumer choice, respectively. It advances legal interpretations to close the gap in the abuse of a dominant position when applied in conjunction with the Digital Markets Act (DMA) provisions relevant to consumer data combinations, digital tying, and algorithmic discrimination. This chapter argues that digital conglomerate mergers and killer acquisitions help sustain unfair consumer data–driven competitive advantage and consumer data combinations detrimental to as-efficient competitors of digital monopolists and consumers. It identifies legislative lacunae concerning the use of AI software algorithms for greater predictive analytics of consumer behaviour due to the availability of consumer experience, location, medical and financial data, and marketing strategies, such as personalised offers. For consumer justice, this chapter argues for economic consumer privacy inclusiveness, namely greater consumer autonomy over economic choices and preferences and greater consumer bargaining of reservation prices with further consumer empowerment in physical and virtual locations.
September 4, 2023 | Permalink
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