Antitrust & Competition Policy Blog

The Italian Guidelines on Antitrust Compliance Programs and the Difficult Goal of Matching Deterrence, Education, and Business Ethics

Federico Cesare Guido Ghezzi, Bocconi University - Department of Law has written on The Italian Guidelines on Antitrust Compliance Programs and the Difficult Goal of Matching Deterrence, Education, and Business Ethics.

Abstract: In 2018, the Italian Competition Authority issued the “Guidelines on antitrust compliance programs”. The Guidelines identify the adoption and implementation of a robust and effective compliance program as a mitigating circumstance in the calculation of fines for anti-competitive violations. Specifically, the Guidelines allow for a reduction of up to 15% of the fine in the event the antitrust compliance program is adopted before the beginning of an investigation (so-called ex ante facto programs) and a more limited reduction, up to 5% of the fine, for compliance programs implemented during the investigation (so-called ex post facto programs). These reductions are applicable to fines imposed as a result of anticompetitive arrangements and abuses of a dominant position under both the European and Italian competition provisions. In this paper we argue that while the decision to incentivize compliance programs is justified by the lack of competition culture and the structure of the Italian industrial sector, the design of the incentive provided for in the Guidelines is wrong. In particular, the Guideines try to protect its most important enforcement tool, i.e. the leniency program, by conditioning the reward for successful compliance programs to the self-reporting to the competition authority. We suggest a different set of incentives that should protect the leniency program while maintaining the interest in adopting a compliance program. We furthermore suggest a change in the Italian fining Guidelines in order to make the incentives for the adoption of ex ante compliance programs more effective, especially for small and medium sized enterprises.

Assessment of Collusion Damages in First Price Auctions

M. Florencia Gabrielli, Conicet - UNCuyo, and Manuel Willington Escuela de Gobierno - Universidad Adolfo Ibáñez address Assessment of Collusion Damages in First Price Auctions .

Abstract: In this paper we propose a structural method for estimating the efficiency and revenue losses associated with bidding rings in symmetric and asymmetric first-price auctions. It is based on the auction estimation literature (Guerre, Perrigne, and Vuong [2000]) and is consistent with damage assessment methodologies used in antitrust cases, in the sense that we build a but-for (competitive) scenario and then estimate the differences between the but-for scenario and the factual one. We show in a Monte Carlo exercise that our methodology performs very well in moderate size samples. We apply our methodology to California highway procurement data after first identifying a potential set of colluders using standard tests in the literature.

Pharmacy Benefit Managers and Generic Pharmaceuticals Pricing Conspiracy: Unveiling Lock-In Mechanisms, Structural Shortcomings and Antitrust Evidence

Kwanghyuk Yoo University of Iowa, College of Law discusses Pharmacy Benefit Managers and Generic Pharmaceuticals Pricing Conspiracy: Unveiling Lock-In Mechanisms, Structural Shortcomings and Antitrust Evidence.

ABSTRACT: Titanic-scale multistate generic pricing antitrust litigation has been underway since December 2016, increasingly involving a myriad of generic drug manufacturers and drugs. Forty-seven states allege a pricing conspiracy wherein twenty defendants participated in a multitude of specific horizontal conspiracies to fix prices and markets for fifteen generic drugs in a manner to injure robust generic competition. However, this litigation may have overshadowed an overlooked but important concern. This article argues that the behind-the-scenes conspiracy between generic manufacturers and so-called Pharmacy Benefit Managers (PBMs) may have constituted an integral part of the overarching conspiracy alleged in the litigation. PBMs play a pivotal role as intermediaries in the pharmaceutical supply chain and orchestrate a multitude of inter-generic conspiracies. The pharmaceutical industry situates PBMs in a dominant position to have exclusive and full access to price information and exert influence over profit-maximizing pricing strategies of generic manufacturers. This fact serves as strong evidence that generic manufacturers locked in the PBM-constrained industrial structure are highly incentivized to buy off PBMs in order to control the overarching pricing conspiracy. PBMs’ role in the pharmaceutical logistical chain allows them to further anticompetitive generic collusion, taking the form of vigorous manipulation of two cost-saving schemes: manufacturer rebates and pharmacy reimbursement. This article thoroughly examines the mechanics of how PBMs specifically manipulate these schemes utilizing the complex pricing system, and further provides circumstantial and economic evidence strongly implicating the generic-PBM conspiracy and pragmatic suggestions for the prospective investigation.

The Principle of Relative Responsibility in Antitrust Damages

Enrique Sanjuan, University of Malaga - Facultad de Derecho discusses The Principle of Relative Responsibility in Antitrust Damages.

Abstract: The present work focuses on the principle of relative responsibility set in the Damage Directive 2014/104/EU. The principle of relative responsibility “supposes a modulation (that does not qualify) to the principles of full compensation and joint and several liabilities insofar as it channels that responsibility, on the one hand, according to the criteria of the participation of the offender in the conduct that violates the rules of competition from its infringing participation fee; and on the other, it delimits and limits this responsibility based on the cooperation that the aforementioned offender has had on the basis of the leniency programs or the possible agreements reached with the injured parties."

EU Competences and the Damages Directive: The Continuum Between Minimum and Full Harmonisation

Max Hjärtström Lund University and Julian Nowag Lund University - Faculty of Law; Oxford Centre for Competition Law and Policy explain EU Competences and the Damages Directive: The Continuum Between Minimum and Full Harmonisation.

ABSTRACT: The paper examines the Damage Directive and focuses accordingly on the issue of competence allocation between the Union and the Member States. It examines the degree of comprehensiveness and detail of the Directive, as well as future perspectives of exhaustive harmonisation on EU level. It is argued that the distinction between minimum and maximum (or full) harmonisation is not particularly helpful. Instead, we suggest an alternative understanding of harmonisation in the area, based on a continuum. This continuum emerges between Union competences on the one side of the spectrum, and national procedural autonomy on the other. This new perspective allows for a better understanding of the current and future functioning of the Directive, and shows that in certain areas, EU competence provides a firmer ground for comprehensive regulation, whilst in other areas, more deference to the Member States’ legal orders is necessary. The first part of this paper examines the judge-made right to compensation for loss suffered as a result of antitrust harm, and shows that the Directive is, by and large, seen as a form of minimum harmonisation. The second part then highlights why this characterisation seems problematic, introduces the continuum and explains the rationale for greater or lesser intrusion on the part of the EU. The concluding section finally provides an outlook as to what action could be expected from the EU based on the continuum-approach.

Horizontal Shareholding within the European Competition Law Framework: Discussion of the Proposed Solutions

Riccardo Fadiga, Freshfields Bruckhaus Deringer - Freshfields Bruckhaus Deringer LLP describes Horizontal Shareholding within the European Competition Law Framework: Discussion of the Proposed Solutions.

ABSTRACT: The literature shows that horizontal shareholding engenders significant anticompetitive effects and that no suitable instrument exists within European competition law which reliably and effectively can be applied to curtail such intrinsic effects. This Article analyses several proposals which have been put forward by the scholarship and the institutions in order to compare and contrast their advantages and disadvantages, and shows that enforcement against horizontal shareholding on the basis of Article 102 TFEU affords substantial benefits compared to other solutions, with no comparable disadvantages.

Can Collusion Promote Corporate Social Responsibility? Evidence from the Lab

Francisco Gomez-Martinez, Universidad Carlos III Madrid, Sander Onderstal, University of Amsterdam; Tinbergen Institute, and Maarten Pieter Schinkel, University of Amsterdam - Department of Economics; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ask Can Collusion Promote Corporate Social Responsibility? Evidence from the Lab.

ABSTRACT: Competition has been argued to erode socially responsible behavior in markets, suggesting that allowing cartel agreements among firms may promote public interest objectives. We test this idea in a laboratory experiment. Participants playing the role of firms choose between offering a ‘fair’ and an ‘unfair’ good to a consumer participant. When the unfair good is traded, a negative externality is imposed on a third party. We vary whether or not the firms are allowed to coordinate on the type of good they sell. We find that the opportunity to coordinate has no significant impact on the fraction of fair goods traded on the market, but polarizes: more of the same good, fair or unfair, is offered. Consumer surplus and profit are, on average, not affected. Irrespective of whether coordination between firms is allowed, participants are more likely to trade the fair good, the stronger their third-party preferences are. These findings suggest that both consumer and managerial values are more important drivers of socially responsible behavior than opportunities for firms to coordinate their CSR activities. We highlight implications for competition policy, where cartels may be exempted on CSR grounds.

Reduced Demand Uncertainty and the Sustainability of Collusion: How AI Could Affect Competition

Jason O'Connor (Pitt) and Nathan Wilson (FTC) have a new paper on Reduced Demand Uncertainty and the Sustainability of Collusion: How AI Could Affect Competition. Highly recommended

Abstract: We consider how technologies that eliminate sources of demand uncertainty change the character and prevalence of coordinated conduct. Our results show that mechanisms that reduce firms' uncertainty about the true level of demand have ambiguous welfare implications for consumers and firms alike. An exogenous increase in firms' ability to predict demand may make collusion possible where it was previously unsustainable. However, it also may make collusion impracticable where it had heretofore been possible. The underlying intuition for this ambiguity is that greater clarity about the true state of demand raises the payoffs both to colluding and to cheating. The net effect will depend on a given market's location in a multidimensional parameter space. Our findings on the ambiguous welfare implications of AI in market intelligence applications contribute to the emerging literature on how algorithms and other forms of artificial intelligence may affect competition.

IPR Protection and Antitrust Regulation of SEPs in China

Liyang Hou Shanghai Jiao Tong University (SJTU) - KoGuan Law School and Mengchi Tian Shanghai Jiao Tong University (SJTU), KoGuan Law School explore IPR Protection and Antitrust Regulation of SEPs in China.

ABSTRACT: This paper explores the practice of IPR protection and antitrust regulation of standard essential patents (SEPs) in China and discusses whether the licensing of SEPs should be regulated in a way different from other patent cases. With regard to IPR protection, the Chinese judiciary has actively taken a role in patent infringement trials. Differences are observed in SEP infringement lawsuits as compared to ordinary patent cases in terms of non-infringement defense, counter-injunction defense, and damages. In relation to antitrust regulation, the Chinese competition agencies and the courts have mainly focused on price-related abuses and SEP-related merger review, and paid particular attention to the possibility of SEP holders leveraging, tying SEPs with non-SEPs, and charging high royalty fees. Since SEPs have raised a different issue than other types of IPRs, a delicate balance between protecting the private interest of the SEP holders and the public interest of standardization will have to be re-struck.

Compliance Programs and Abuse of Dominance Under Brazilian Competition Law: A Roadmap for Compliance Monitors

Victor Oliveira Fernandes, University of São Paulo (USP) discusses Compliance Programs and Abuse of Dominance Under Brazilian Competition Law: A Roadmap for Compliance Monitors.

ABSTRACT: The Brazilian antitrust authority (Portuguese acronym CADE) has been following a worldwide trend in encouraging the adoption of competition law compliance programs. Nevertheless, one can see an apparent policy gap in the current optimal incentives for compliance program adoption in antitrust enforcement. While programs aimed to detect cartels are being increasingly rewarded with reductions in fines for antitrust infringements imposed by the competition authority, there is still little guidance on how compliance programs should be structured to detect prior and avoid abuse of dominance practices. As CADE’s approach to monopolization practices has relied on a variety of presumptions of lawfulness, this article explores three main elements that should be incorporated into an effective antitrust compliance program aimed to prevent monopolization: (i) a conservative assessment of market power; (ii) a strict and proportional standard for measuring efficiency justifications and (iii) a viable mechanism for submitting consultations to CADE’s Tribunal. From the perspective of both the business community and enforcers, competition law compliance programs should be viewed as a catalyst for improving antitrust enforcement against abuse of dominance practices.

46th Annual Conference on International Antitrust Law and Policy + Antitrust Economics Workshop 11 – 13 September 2019

Competition Law Institute

For 46 years, the Fordham Competition Law Institute has presented the annual International Antitrust Law and Policy Conference, which is widely recognized as one of the premier events in the field.

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46th Annual Conference on International Antitrust Law
and Policy + Antitrust Economics Workshop

11 – 13 September 2019

ANTITRUST ECONOMICS WORKSHOP
Wednesday, 11 September 2019
8:45 a.m. – 4:15 p.m.

The workshop features economic experts and leading antitrust practitioners speaking on key topics and include a networking luncheon.
 

CONFERENCE
Thursday – Friday, 12 – 13 September 2019
Day 1 | 8:45 a.m. – 4:40 p.m., reception immediately following
Day 2 | 8:30 a.m. – 1:50 p.m.

Join antitrust agency heads, senior officials from antitrust authorities, leading attorneys from law firms and in-house legal departments, academics, and students of competition law from around the globe for one of the premier international conferences in antitrust law and policy. This year's panel discussions will address antitrust and populism, merger enforcement around the globe, emerging issues in competition law and health care, vertical restraints, and managing multijurisdictional risks and issues. A networking luncheon and reception take place on Thursday.

Much Ado About Nothing? Online Platform Price Parity Clauses and the EU Booking.com Case

Andrea Mantovani, University of Bologna, Claudio A. Piga, Keele University - Keele Management School, and Carlo Reggiani, University of Manchester ask Much Ado About Nothing? Online Platform Price Parity Clauses and the EU Booking.com Case.

ABSTRACT: Online platforms often impose Price Parity Clauses to prevent sellers from charging lower prices on alternative sales channels. We provide quasi-experimental evidence on the full removal of Price Parity Clauses in France in 2015 and in Italy in 2017 for hotels listed on Booking.com. Our analysis reveals a relatively limited effect in the short run followed by a significant reduction in room prices in the medium run. Moreover, we find that hotels affiliated with chains decreased their prices more than independent hotels, both in the short and medium run.

 

Antitrust Division Announces New Policy to Incentivize Corporate Compliance

From the press release:

During remarks today, Assistant Attorney General Makan Delrahim announced the Antitrust Division’s new policy for incentivizing antitrust compliance. For the first time, the Division will consider compliance at the charging stage in criminal antitrust investigations, a change which is reflected in the Justice Manual. The Division also announced revisions to its Manual and published a document to guide prosecutors’ evaluation of corporate compliance programs at the charging and sentencing stage.

“The Antitrust Division is committed to rewarding corporate efforts to invest in and instill a culture of compliance,” said Assistant Attorney General Delrahim. “The Division’s Leniency Policy has long provided the ultimate credit for effective antitrust compliance programs. Beyond leniency, recently we have credited prospective compliance efforts at sentencing. Crediting compliance at charging is the next step in our continued efforts to deter antitrust violations and reward good corporate citizenship. We also remain dedicated to predictability and transparency. As such, in concert with today’s policy changes, the Division issued a public guidance document that outlines what prosecutors look for when evaluating antitrust compliance programs.”

The Justice Manual previously explained the Antitrust Division’s policy “that credit should not be given at the charging stage for a compliance program.” That text has been deleted.

The Division also updated its Manual. The revisions address evaluating compliance programs at the charging and sentencing stage, and Division processes for recommending indictments, plea agreements, and selecting monitors.

For the first time, the Division also published a guidance document that focuses on evaluating compliance programs in the context of criminal violations of the Sherman Act. It is intended to assist Division prosecutors in their evaluation of compliance programs at both the charging and sentencing stage of investigations, and to provide compliance officers and the public greater transparency of the Division’s compliance analysis. To that end, it contains two sections: the first relates to evaluating antitrust compliance programs at the charging stage, and the second addresses compliance considerations at sentencing.

 

I applaud the Antitrust Division for this development. This is a very significant development and something that I have been pushing for in my own writing for years:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2230121

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2475959 

Assistant Attorney General Makan Delrahim Delivers Remarks at the New York University School of Law Program on Corporate Compliance and Enforcement

See here.

This is a very significant development and something that I have been pushing for in my own writing for years:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2230121

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2475959 

 

 

The Persistence of Broadband User Behavior: Implications for Universal Service and Competition Policy

Andre Boik, University of California, Davis - Department of Economics, Shane M. Greenstein, Harvard University - Technology & Operations Management Unit; National Bureau of Economic Research (NBER), and Jeffrey Prince, Indiana University - Kelley School of Business - Department of Business Economics & Public Policy identify The Persistence of Broadband User Behavior: Implications for Universal Service and Competition Policy.

ABSTRACT: In several markets, firms compete not for consumer expenditure but consumer attention. We examine user priorities over the allocation of their time, and interpret that behavior in light of policy discussions over universal service, data caps, and related policy topics, such as merger analysis. Specifically, we use extensive microdata on user online choice to characterize the demand for the services offered online, which drives a household’s supply of attention. Our data cover a period of time that saw the introduction of many new and notable sites and new devices on which to access them. In our analysis, we assess “how” households supply their attention along various dimensions, such as their concentration of attention across the universe of sites and the amount of attention expenditure per domain visit. Remarkably, we find no change in “how” households allocated their attention despite drastically changing where they allocated it. Moreover, conditional on total attention expenditure, demographics entirely fail to predict our key measures of attention allocation decisions. We highlight several important implications, for policy and beyond, stemming from the persistence and demographic orthogonality of our novel attention measures.

Estimating the Pass-On Effect in Antitrust Damage Cases: Relative Strengths and Weaknesses of the ‘Comparator’ Method vs. the ‘Pass-On Rate’ Method

Miguel de la Mano, Compass Lexecon and Christopher Milde, Compass Lexecon are Estimating the Pass-On Effect in Antitrust Damage Cases: Relative Strengths and Weaknesses of the ‘Comparator’ Method vs. the ‘Pass-On Rate’ Method.

ABSTRACT: In this paper we compare the assumptions and information requirements of two common methods to pass-on effect estimation for the calculation of damages in cartel or abuse of dominance cases: the comparator and the pass-on rate methods. We note that the comparator method is feasible in some situations in which the pass-on rate method is not. Moreover, the comparator method may require fewer assumptions on the true (but unobservable) price mechanism. Where both methods are feasible, however, the pass-on rate method arguably requires less data and likely fewer control variables. Therefore, depending on the specific circumstances in a given case and the availability of data, each method has different strengths and weaknesses. A general preference for the comparator method as stated in the EU draft guidelines on pass-on estimation is thus not justified. To the contrary, in some arguably standard situations the lower data and control variable requirements of the pass-on rate method may imply that it is preferable to the comparator method.

The Common Ownership Boom - Or: How I Learned to Start Worrying and Love Antitrust

Anna Tzanaki, European University Institute; University College London - Centre for Law, Economics and Society has posted The Common Ownership Boom - Or: How I Learned to Start Worrying and Love Antitrust.

ABSTRACT: Is common ownership the Doomsday Machine for the operation of free markets, competition and capitalism as we know it? An observer of cutting-edge law and economics literature may indeed tend to believe that we are approaching a point of ultimate antitrust apocalypse. This article tries to unfold the ongoing antitrust-focused debate by exploring a series of questions: i) who is a common owner; ii) what are the negative externalities of common ownership; iii) which are the potential anticompetitive mechanisms and theories of harm; iv) what are the appropriate legal solutions to any competition concerns. While there is so much we do not know, common ownership forces us, with some urgency, to revisit and review whether our existing antitrust tools, methods and policies are well fit for purpose.

Consumer Inertia and Market Power

Alexander MacKay, Harvard Business School and Marc Remer, Swarthmore College - Economics Department study Consumer Inertia and Market Power.

ABSTRACT: We study the pricing decision of firms in the presence of consumer inertia. Inertia can arise from habit formation, brand loyalty, switching costs, or search, and it has important implications for the interpretation of equilibrium outcomes and counterfactual analysis. In particular, consumer inertia affects the scope of market power. We show that the effects of competition on prices and profits are non-monotonic in the degree of inertia. Further, a model that omits consumer inertia tends to overstate the marginal effect of competition on price, relative to a benchmark that accounts for consumer dynamics. We develop an empirical model to estimate consumer inertia using aggregate, market-level data. We apply the model to a hypothetical merger of two major retail gasoline companies, and we find that a static model predicts price increases greater than the price increases predicted when accounting for dynamics.

Much Ado About Nothing? Online Platform Price Parity Clauses and the EU Booking.com Case

Andrea Mantovani, University of Bologna, Claudio A. Piga, Keele University - Keele Management School, and Carlo Reggiani, University of Manchester ask Much Ado About Nothing? Online Platform Price Parity Clauses and the EU Booking.com Case.

ABSTRACT: Online platforms often impose Price Parity Clauses to prevent sellers from charging lower prices on alternative sales channels. We provide quasi-experimental evidence on the full removal of Price Parity Clauses in France in 2015 and in Italy in 2017 for hotels listed on Booking.com. Our analysis reveals a relatively limited effect in the short run followed by a significant reduction in room prices in the medium run. Moreover, we find that hotels affiliated with chains decreased their prices more than independent hotels, both in the short and medium run.

Gender Inequality, Market Distortion and Consumer Welfare: A Call to Action for Competition Authorities

Sarah Long has written about Gender Inequality, Market Distortion and Consumer Welfare: A Call to Action for Competition Authorities.