Antitrust & Competition Policy Blog

How Do Hub-and-Spoke Cartels Operate? Lessons from Nine Case Studies

Joseph E. Harrington Jr, University of Pennsylvania asks How Do Hub-and-Spoke Cartels Operate? Lessons from Nine Case Studies.

ABSTRACT: Hub-and-spoke collusion is when firms in a market coordinate their conduct by communicating through an upstream supplier or downstream customer. This study examines nine hub-and-spoke cartels towards understanding how they operate: What is the collusive scheme? How do firms achieve mutual understanding regarding that scheme? What is the role played by the hub? How effective is hub-and-spoke collusion? The paper also discusses legal approaches to hub-and-spoke collusion.

Diversified FRAND Enforcement and TRIPS Integrity

Wenwei Guan, City University of Hong Kong (CityUHK) - Centre for Chinese & Comparative Law offers Diversified FRAND Enforcement and TRIPS Integrity.

ABSTRACT: As an integral part of the WTO trading regime and in line with the international trend of antitrust control, TRIPS harmonized intellectual property protection with competition in mind. However, diverse national FRAND enforcement practices that take either a contractual or an antitrust approach challenge TRIPS integrity. While personal property recognition for SEPs lends constitutional support to the contractual approach to FRAND enforcement, private property's in-built limitation warrants a balance with the antitrust approach for needs from others. A critical examination of the TRIPS conclusion and the analytical structure of TRIPS provisions reveal that TRIPS obligation against anticompetitive practices is imperative. The imbalance of harmonized TRIPS with un-harmonized FRAND practices reflects TRIPS birth defect and challenges TRIPS integrity. To improve balance of rights and obligations in international trade and to ensure innovation and technology dissemination that is conducive to social and economic welfare, the paper calls for a contract–antitrust balanced approach to FRAND enforcement and the resumption of WTO's competition negotiations.

Disruptive Innovation and Implications for Competition Policy

Ian S. Forrester discusses Disruptive Innovation and Implications for Competition Policy.

ABSTRACT: While competition is good for consumers and economies, competition rules alone cannot necessarily produce adequate outcomes for all circumstances. Other norms, particularly regulatory norms, are also often likely to be relevant. The current legal and policy debates about ‘disruptive innovation’ highlight the need for a healthy mixture of competition and regulation. This paper offers a series of reflections arising from the challenges posed by disruptive products, services and business models. These reflections cover matters such as the capacity of legal procedures to keep pace with rapidly changing market environments. Competition advocacy can help regulators decide controversial points. The paper discusses several sectors, such as the car-riding and overnight sleeping sectors, in which different interests must simultaneously be accommodated within the boundaries of national tradition and European Union law. As discussed, some of these matters have now been adjudicated by the EU Courts. The related subjects of the acquisition of data as well as the requirements of privacy and data protection principles are also considered. The paper reflects on the role of network effects and on the difficult choices to be made with regard to the wisdom of relying on competition law or on the nature of innovation itself to deliver appropriate responses to the growth of network-based economic power; and the paper notes but does not suggest a remedy for the problem of delay as inimical to effective judicial review.

Mergers and Marginal Costs: New Evidence on Hospital Buyer Power

Stuart Craig, University of Pennsylvania - The Wharton School, Matthew Grennan, University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER), and Ashley Swanson, University of Pennsylvania - The Wharton School; NBER offer Mergers and Marginal Costs: New Evidence on Hospital Buyer Power.

ABSTRACT: We estimate the effects of horizontal mergers on marginal cost efficiencies – a ubiquitous merger justification – using data containing supply purchase orders from a large sample of US hospitals 2009-2015. The data provide a level of detail that has been difficult to observe previously, and a variety of product categories that allows us to examine economic mechanisms underlying “buyer power.” We find that merger target hospitals save on average $176 thousand (or 1.5 percent) annually, driven by geographically local efficiencies in price negotiations for high-tech “physician preference items.” We find only mixed evidence on savings by acquirers.

Deputy Assistant Attorney General Roger Alford Delivers Remarks at the LeadershIP EU 2018 Annual Conference in Brussels

Deputy Assistant Attorney General Roger Alford Delivers Remarks at the LeadershIP EU 2018 Annual Conference in Brussels - Brussels, Belgium ~ Tuesday, November 13, 2018. See here.

Federal Preemption of Local Government Telegraph Franchise Entry Barriers

Aaron Honsowetz Bethany College has written on Federal Preemption of Local Government Telegraph Franchise Entry Barriers.

ABSTRACT: The United States central government enactment of the 1866 Post Roads Act preempted state and municipal telegraph franchise entry barriers. Like present-day telecommunication companies, local franchise regulations were an entry barrier to United States telegraph companies. These pre-1866 state and municipal telegraph laws were barriers of both entry and trade between states. Trade barriers reduced the benefits of a common market and undermined market-preserving federalism (Weingast 1995). I document what laws were preempted by the 1866 Post Roads Act, explain how these laws increased entry barriers, provide evidence that preemption was enforced, and uses two counterfactuals to calculate rough estimates of the decrease in entry costs from enforcement of the act.

On Competing Mechanisms Under Exclusive Competition

Andrea Attar, University of Roma Tor Vergata; Toulouse School of Economics, Eloisa Campioni, University of Rome Tor Vergata - Dept. of Economics and Finance, and Gwenael Piaser, IPAG Business School provide thoughts On Competing Mechanisms Under Exclusive Competition.

ABSTRACT: We study games in which several principals design mechanisms in the presence of privately informed agents. Competition is exclusive: each type of each agent can participate with at most one principal and meaningfully communicate only with him. Economic models of exclusive competition restrict principals to use standard direct mechanisms, which induce truthful revelation of agents’ exogenous private information. This paper investigates the rationale for this restriction. We provide two results. First, we construct examples showing that direct mechanisms fail to completely characterize equilibrium outcomes even if we restrict to pure strategy equilibria. Second, we show that truth-telling strongly robust equilibrium outcomes survive against principals’ unilateral deviations toward arbitrary mechanisms.

Vertical Differentiation and Airline Alliances: The Effect of Antitrust Immunity

Xavier Fageda, University of Barcelona - Department of Economic Policy, Ricardo Flores-Fillol, Universitat Rovira i Virgili (URV), and Ming Hsin Lin, Osaka University of Economics - Faculty of Economics discuss Vertical Differentiation and Airline Alliances: The Effect of Antitrust Immunity.

ABSTRACT: This paper explores, both theoretically and empirically, the impact of granting antitrust immunity (ATI) to airline alliances in a novel and realistic framework characterized by vertically-differentiated air services. Our theoretical model suggests that non-ATI alliances produce an up-market movement yielding higher quality services at higher fares, whereas ATI alliances induce a down-market movement. Using data for fares on the transatlantic market from the Official Airlines Guide (OAG) corresponding to the period 2010-2017, our theoretical findings are empirically confirmed except for the effect of ATI alliances on fares. Finally, our results (both theoretical and empirical) indicate that alliances tend to concentrate a higher proportion of frequencies on high-quality routings, although airport congestion could partially compensate this effect.

THE DOGMATIC OF ARTICLE 101 TFEU AND INFORMATION EXCHANGES

JOSÉ MARÍA BAÑO FOS has a new book on THE DOGMATIC OF ARTICLE 101 TFEU AND INFORMATION EXCHANGES.

BOOK ABSTRACT: Information exchanges are at the heart of most European and national investigations nowadays. In fact, they cover a substantive part of the Commission’s Guidelines on Horizontal Cooperation. In bureaucratic terms, they are a “policy priority”.
However, the development of such an infringement has come at the expense of legal certainty as it implies, de facto, redrawing the red lines that safeguard Article 101 TFEU. By punishing this behavior as a “self-standing” infringement, the area of protection of Article 101 TFEU is broadened. It is no longer necessary to show the existence of a cartel, it suffices to show that the exchange (or disclosure) could most logically end up in a cartel, for the practice to be prohibited and punished. 
This raises several questions that this book seeks to answer: is there an economic basis for such a conclusion? If so, does this infringement fit within the wording and purpose of Article 101 TFEU? And ultimately, as with any other infringement, how can we avoid committing type I mistakes while ensuring the effectivity of Article 101 TFEU?

Addressed towards practitioners and scholars this book provides a useful toolkit for analyzing information exchanges and their likelihood to carry out a fine while, at the same time, develops a systematic analysis on the legal nature of Article 101 TFEU. 

Excessive Pricing in the Pharmaceutical Market – How the CAT Shot Down the CMA’s Pfizer/Flynn Case

James Killick and Assimakis Komninos examine Excessive Pricing in the Pharmaceutical Market – How the CAT Shot Down the CMA’s Pfizer/Flynn Case.

ABSTRACT: The article analyses the recent judgment of the UK Competition Appeal Tribunal (CAT) which annulled the decision fining Pfizer and Flynn Pharma for abusing their dominant position by charging excessive prices for a pharmaceutical product. While competition authorities have historically been quite reluctant to bring excessive pricing cases, lately there has been a flurry of activity, particularly in the pharmaceutical markets. The UK Competition and Markets Authority (CMA) has been at the forefront of this activity. The CAT’s ruling serves as a useful reminder that competition authorities can of course elect to prioritise excessive pricing cases but their decisions must be ‘soundly based on proper evidence and analysis’.

 

The Right of Defense in the Decentralized System of EU Competition Law Enforcement: A Call for Harmonization from Central and Eastern Europe

Maciej Bernatt University of Warsaw, Centre for Antitrust and Regulatory Studies, Marco Botta Max Planck Institute for Innovation and Competition, and Alexandr Svetlicinii, University of Macau - Faculty of Law address The Right of Defense in the Decentralized System of EU Competition Law Enforcement: A Call for Harmonization from Central and Eastern Europe.

ABSTRACT: The article compares the application of the right of defense in competition law proceedings by seven National Competition Authorities (NCAs) of Central and Eastern Europe (CEE). In particular, the article focuses on four sub-rights that are part of the right of defense: right to be informed; right to access the file; privilege against self-incrimination (PASI) and legal professional privilege (LPP). The article shows that the NCAs selected as case studies generally provide lower procedural guarantees in comparison to DG Competition of the European Commission. The findings of the article are relevant in view of the Directive aiming at harmonizing the powers of NCAs (“ECN Directive”). The legislation aims at strengthening the investigatory tools of NCAs, while it pays limited attention to the procedural guarantees followed by NCAs. In view of the diverging application of the right of defense by the NCAs selected as case studies, the article challenges such policy choice, claiming that stronger investigative powers should be counterbalanced by a more homogenous application of the right of defense by NCAs of the EU Member States.

Ohio v. American Express: Misunderstanding Two-Sided Platforms, the Credit Card 'Market,' and the Need for Procompetitive Justifications

Jeffrey Lynch Harrison, University of Florida - Levin College of Law explains Ohio v. American Express: Misunderstanding Two-Sided Platforms, the Credit Card 'Market,' and the Need for Procompetitive Justifications.

ABSTRACT: In Ohio v. American Express Co., the United States Supreme Court had its first knowing encounter with what it incorrectly viewed as a two-sided platform in the context of American Express’ Non Disclosure Provisions (NDP). Under these provisions merchants accepting the American Express card for payment are not permitted to inform consumers that other cards charge merchants less for their use and that this could be reflected in the final price paid. The opinion includes poor reasoning, a lack of attention to precedent, and bad news for those who thought antitrust law was due for a revival. Yet, and perhaps surprisingly, the outcome may be correct. Part II of this Essay very briefly summarizes the antitrust landscape in order to provide an understanding of where the practices of America Express fit. Part III then discusses the two-sided market issue generally and how it was treated in American Express specifically. That Part includes an explanation of why what was involved in American Express was actually a one-sided market that had been segmented in the interests of price discrimination. In fact, American Express and its competitors sell a single product to one group of customers: the right to delay payment to purchasers of goods and services. Part IV also makes the point that the American Express system shares characteristics of tying, resale price maintenance, and exclusive dealing. It further claims that the NDP shares none of the qualities that make those practices frequently lawful. American Express’s activity skirts the edges of several vertical restraints and its underlying character restricted interbrand competition. Part V includes general observations about the case and suggests the outcome may be correct but that the reasoning employed to get there is troublesome in that it continues the trend to minimize the importance of antitrust law.

Android - Is There a Viable Monopolization Case?

Stephen Houck, Offit Kurman, P.A. asks Android - Is There a Viable Monopolization Case?

ABSTRACT: This paper considers the viability of a Sherman Act § 2 enforcement action in respect of Google’s Android operating system. It discusses the applicability of the D.C. Circuit’s 2001 Microsoft opinion in which Microsoft was found to have engaged in anticompetitive conduct to maintain its Windows operating system monopoly. The paper explains why, despite some superficial similarities, the facts that gave rise to liability in Microsoft are different in crucial respects from those pertaining to Android. The paper concludes 1) that Google lacks monopoly power in a properly defined market in which Android competes; and 2) that Google has not engaged in the type of anticompetitive conduct condemned in Microsoft. The facts underlying Microsoft and the D.C. Circuit’s reasoning strongly suggest that an enforcement action in the United States is unlikely to succeed notwithstanding the European Commission’s July 2018 Android decision.

Sound Guppi Safe Harbor: A Calibrated Unilateral Effects Screen for Merger Enforcement

Murthy Kambhampaty, CAP Economics; Navigant Economics assesses Sound Guppi Safe Harbor: A Calibrated Unilateral Effects Screen for Merger Enforcement.

ABSTRACT: The 2010 Horizontal Merger Guidelines (Guidelines) advance the use of the Gross Upward Pricing Pressure Index (GUPPI) for analyzing unilateral effects of mergers in differentiated-products industries. However, the Guidelines do not quantify a GUPPI safe harbor threshold, whereas the Guidelines do quantify thresholds for concentration (HHI) and change in concentration (ΔHHI) below which a merger is considered unlikely to harm competition, i.e., to lie within a safe harbor. Prior proposals for a GUPPI safe harbor threshold reflect a calibration to the 5 percent benchmark for the “small but significant nontransitory increase in price” (SSNIP) in the Guidelines, but the benchmark SSNIP is not a safe harbor threshold. This paper presents a GUPPI safe harbor defined as (a.) a GUPPI threshold that is derived from the ΔHHI safe harbor, along with (b.) a diversion ratio threshold to address the concern that a GUPPI safe harbor threshold produces false negatives under specific conditions. A sound GUPPI safe harbor, as derived in this paper, improves the clarity, consistency, and transparency of merger enforcement under the Guidelines.

Ernst & Young: First Guidance on Gun-jumping at EU Level

Tobias Caspary and Julie Flandrin has written on Ernst & Young: First Guidance on Gun-jumping at EU Level.

ABSTRACT: Only merging party conduct that materially contributes to the change of target control during the standstill period is prohibited gun-jumping.

 

More Competition Lore Episodes

Episode 13: Academics and big tech, with Prof Daniel Sokol: https://competitionlore.com/podcasts/academics-and-big-tech/

Episode 14: Why we need maverick academics, with Prof Ioannis Lianos: https://competitionlore.com/podcasts/maverick-academics-antitrust/

Primary Care Competition and Quality of Care: Empirical Evidence from Medicare's Physician Quality Reporting System

Christopher Brunt, Georgia Southern University - Department of Finance and Economics, Joshua R. Hendrickson, University of Mississippi; American Institute for Economic Research, and John R. Bowblis, Miami University of Ohio - Department of Economics identify Primary Care Competition and Quality of Care: Empirical Evidence from Medicare's Physician Quality Reporting System.

Abstract: Using data from Medicare’s Physician Compare Quality Reporting System, we explore the effects of primary care physician (PCP) practice competition on four distinct quality metrics directly tied to screening and follow-up care. Controlling for physician and practice attributes, we find strong evidence that primary care practices in more concentrated markets are less likely to perform screening and follow- ups for blood pressure, body weight, depression, and tobacco use. These results suggest that mergers of physician practice may harm quality competition implying that antitrust merger review should not only focus on how provider mergers impact commercially insured prices but also quality for Medicare beneficiaries.

Patent Value

John R. Allison, University of Texas - McCombs School of Business formulates Patent Value.

ABSTRACT: This paper provides an analysis of the concept of patent value and the identification of patents with economic value. It distinguishes private and social value, and critically analyzes the literature on the subject of patent value.

Standing on the Shoulders of Dwarfs: Dominant Firms and Innovation Incentives

Luis Cabral, NYU is Standing on the Shoulders of Dwarfs: Dominant Firms and Innovation Incentives.

ABSTRACT: We develop a dynamic innovation model with three important features: (a) asymmetry between large and small firms ("giants" and "dwarfs"); (b) technology transfer by acquisition; and (c) the distinction between radical innovation (compete for the market) and incremental innovation (compete within the market). We provide conditions such that (a) greater asymmetry between giant and dwarfs decreases incremental innovation but increases radical innovation; and (b) allowing for technology transfer increases incremental innovation but decreases radical innovation. 

These results have several policy implications, including: (a) with weak markets for technology, a soft antitrust policy toward dominant firms leads to an increase in radical innovation but a decrease in incremental innovation; (b) a merger policy that restricts the acquisition of fringe firms by dominant firms leads to lower incremental innovation rates and higher radical innovation rates; (c) the effect of IP protection on innovation is mixed: by increasing the prize from patenting, it increases incremental innovation; but, by improving the market for technology, it reduces the rate of radical innovation.

Potential Legal Issues in Terminating the ASCAP and BMI Decrees

Allen P. Grunes, The Konkurrenz Group and Maurice E. Stucke, The Konkurrenz Group; University of Tennessee College of Law think about Potential Legal Issues in Terminating the ASCAP and BMI Decrees.

ABSTRACT: This paper addresses some of the likely challenges that the DOJ would face should it seek to terminate the ASCAP and BMI consent decrees. 

In Part I, we provide some background on ASCAP and BMI, the consent decrees, and market structure. In Part II, we discuss how these two decrees have become an important part of the legal scaffolding for licensing music over the past 70 years. 

Given the important role the decrees have played in mitigating the antitrust risks from ASCAP and BMI while promoting the efficiencies from collective licensing, Part III examines the legal standard the federal court would likely apply in determining whether to terminate the decrees. One problem is that if the ASCAP and BMI consent decrees were terminated, the duopoly would remain, and licensees and consumers would bear the risk of unduly restrictive anticompetitive practices. A second problem is the difficulties the DOJ would likely face in convincing the court that terminating the decrees would benefit the public, given that it reached the opposite conclusion a couple of years ago. Moreover, the concerns the DOJ heard during its review process from licensees, such as Netflix, Pandora, and religious broadcasters, would undercut the argument that the public would somehow benefit from the decrees’ termination. 

Part IV examines the interplay between competition and regulation. One assumption is that an antitrust agency’s mission to promote competition is in tension with prescriptive government regulation. This is certainly true at times. But at other times, particularly in markets with high transaction costs and dominant players, regulation may be needed to promote competition. So this Part explores how behavioral regulatory decrees, like ones in ASCAP, BMI, and other notable antitrust cases, can actually promote, rather than undermine, competition. 

If terminating the decrees will harm, rather than help, competition and consumers, what are the alternatives? Part V offers three potential paths going forward.