Antitrust & Competition Policy Blog

When Uber Eats Its Own Business, and Its Competitors’ Too: Resource Exclusivity, Oscillation, and Cannibalization following Platform Diversification

When Uber Eats Its Own Business, and Its Competitors’ Too: Resource Exclusivity, Oscillation, and Cannibalization following Platform Diversification

Hyuck David Chung

University of Michigan, Stephen M. Ross School of Business

Yue Maggie Zhou

University of Michigan, Stephen M. Ross School of Business

Christine Choi

Abstract

How will a platform firm’s diversification affect its existing business? While platform diversification enables complementors to share some resources across businesses, it may also create opportunities for complementors to oscillate other complementary resources to maximize utilization, thereby hurting the platform firm’s existing business. In addition, it may divert complementors away from competing platform firms. Such sharing-enabled resource oscillation may be due to exclusivity in the use of some complementor resources at the transaction level and the lack of control by platform firms over them at the organizational level. Using datasets on the rideshare and food delivery businesses in New York City, we find that the launch of Uber Eats reduced Uber’s and Lyft’s rideshare trip volumes. These effects were weaker during rush hours.

In The Light Of Dynamic Competition: Should We Make Merger Remedies More Flexible?

In The Light Of Dynamic Competition: Should We Make Merger Remedies More Flexible?

Patrice Bougette

Université Côte d'Azur, CNRS, GREDEG

Oliver Budzinski

Ilmenau University of Technology

Frédéric M. Marty

Research Group on Law, Economics and Management (UMR CNRS 7321 GREDEG) / Université Nice Sophia Antipolis; OFCE; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Abstract

Mergers and acquisitions shape industry competition. Effective merger remedies are important for market efficiency and consumer welfare. This paper explores the need for more flexible remedies to address changing markets after mergers. While the EU permits some flexibility with less restrictive remedies, we conceptually advance the design elements of a dual-phase, bifurcated merger control system. This system integrates ex-ante processes with more systematic and comprehensive ex-post measures. Such an approach can address the shortcomings of the current system and, consequently, holds the potential to enhance merger control in dynamic markets.

An Antitrust Analysis of the NCAA Transfer Policy

An Antitrust Analysis of the NCAA Transfer Policy

 

Michael A. Carrier

Rutgers Law School

Marc Edelman

City University of New York - Baruch College, Zicklin School of Business; Fordham University School of Law

Abstract

The National Collegiate Athletic Association (NCAA) is no stranger to antitrust law. As a trade association composed of nearly all U.S. colleges offering competitive sports, its rules are regularly challenged under antitrust law. In the past 40 years, the NCAA has faced challenges to rules limiting televised game broadcasts, curtailing assistant coaches’ pay, and restraining players’ compensation, among other issues. Restraints on college athlete transfers also could subject the association to reasonable legal scrutiny.

Restrictions on an ability to transfer can harm athletes by preventing their immediate eligibility even though transferring could allow them to be closer to family, enroll in more academically rigorous schools, or escape abusive coaches. Transfer restraints have an especially restrictive effect on players hoping to one day play in the National Football League (NFL). For these individuals, the college football system is the primary opportunity to showcase talent before declaring for the league’s draft. The NCAA’s transfer rules keep many of these elite players on their teams’ benches. This hurts their ability to prepare for careers in the NFL. And it denies football fans the opportunity to watch them perform in college.

The NCAA’s rules that prevent football players from freely transferring between schools have changed over time. Why? Because of the changing preferences of members of the NCAA Division I Council (NCAA Council), a group of college athletic directors and conference commissioners. In April 2021, the NCAA Council changed its rules to facilitate the movement of football players between schools, allowing athletes who had not previously switched schools to pursue transfer opportunities by entering a portal within a 60-day window. On October 4, 2023, the NCAA Council reduced the transfer window from 60 to 45 days.

In this essay, we explore the antitrust consequences of this latest action by the NCAA Council, as well as the broader competitive effects of limits on college football player movement. We conclude that: (1) the NCAA’s transfer limits impose substantial anticompetitive effects; (2) the NCAA could offer (but would need to prove) a justification based on reduced fan interest from a lack of team stability; (3) less restrictive alternatives (including the 60-day transfer window) are available; and (4) the restraint’s anticompetitive effects are likely to outweigh its procompetitive effects.

EU Competition Law as Responsive Law

EU Competition Law as Responsive Law

Stavros Makris

University of Glasgow, School of Law; LSE Law; Wageningen Universtiy; European University Institute, Department of Law (LAW); SciencesPo - Sciences po Paris Law School

Abstract

This article proposes two broad ways to conceptualize EU competition law. EU competition law could be viewed as ‘autonomous law’ (‘AL’), namely as a closed normative system a technocratic tool consisting of a set of rules that prohibit undue restraints of trade. Or, EU competition law could be viewed as ‘responsive law’ (‘RL’), namely as a relatively open normative system and an interpretive practice that oscillates between openness and integrity. The responsiveness approach offers a compelling conceptualization as it explains certain endogenous features of EU competition law: its fuzzy mandate, conceptually elastic vocabulary, and use of rules and standards. In addition, the responsiveness approach can clarify the role economics plays in EU competition law. It views economics as an ‘ideological science’, which, even though it cannot insulate this legal field from value disagreements and make it ‘autonomous’, it can provide a source for positive and normative interpretive statements. On this basis the responsiveness approach maintains that EU competition law is by design open—ie conceptually elastic and factually sensitive—and that its openness can enhance, but also undermine its integrity—ie its capacity to realize its objective in a rule of law-compatible manner. These conflicts between openness and integrity are the cause of EU competition law’s relative indeterminacy. To deal with the problem of indeterminacy, the RL approach proposes a tripartite legal-institutional modus operandi consisting of constructive interpretation, responsive enforcement, and catalytic adjudication. Hence, considering EU competition law as a form of responsive law has three major implications: first, it offers a new way of understanding how this legal field works and changes; second, it suggests a strategy for dealing with EU competition law’s indeterminacy, and third it proposes a new framing for the discursive practices of EU competition law’s epistemic community.

Will Antitrust Become Progressive?

Will Antitrust Become Progressive?

Herbert Hovenkamp

University of Pennsylvania Carey Law School; University of Pennsylvania - The Wharton School

Abstract

Populism has staked its claim in American antitrust policy. While it has not yet significantly influenced the federal judiciary, it does have a presence in the antitrust enforcement Agencies. At this point, however, the populist antimonopoly movement has provided few new ideas. Rather, it has exhumed discarded policies, such as moving merger law back to the 1960s, reviving the Robinson-Patman Act of the 1930s-1970s, reinstating aggressive per se rules against vertical restraints that were in force in the 1960s and 1970s, disinterring concentrated industry proposals from the 1960s,and even returning antitrust policy to some imagined former state that was ignorant of economics.

This movement needs to evolve if it is to survive. While antitrust needs to become more pro-enforcement, it can accomplish that without nostalgic and reactionary returns to an imagined past. Increases in enforcement should be empirically justified, with a focus on practices that provably reduce output and increase price, reduce product quality, or restrain innovation. Populism stands as a significant obstruction to achieving those goals, which requires embracing new realities, not clinging to old ones. When the current anti-monopoly movement makes that move, it will have become progressive.

Economics in the 2023 Merger Guidelines: Three Areas of Concern

Economics in the 2023 Merger Guidelines: Three Areas of Concern

 

Jeremy Sandford

Compass Lexecon

Loren Smith

Compass Lexecon

Nathan Wilson

Compass Lexecon; Compass Lexecon

Abstract

In December 2023, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) jointly released the 2023 Merger Guidelines (MG). The MGs are improved relative to the July 2023 Draft Merger Guidelines (DMG), and we have found things to like in the MG. However, many elements have not changed, and several of these worry us. In particular, as economists, we are concerned that the MG at times appear to substitute hardline rules and subjective priors for economic evidence.

In this chapter, we focus on the economics of three topics covered by the MG: market definition, non-horizontal mergers, and efficiencies. For each topic, we discuss the MG’s approach as compared with prior versions of the Merger Guidelines and discuss what the approach gets right – and wrong – from an economic perspective using examples drawn from recently litigated matters.

Monopolization with Must-Haves

Ide, Enrique and Juan-Pablo Montero
Monopolization with Must-Haves

American Economic Journal: Microeconomics, Vol. 16, No. 3, August 2024, pp. 284-320

ABSTRACT: An increasing number of monopolization cases have been constructed around the notion of “must-have” items: products that distributors must carry to “compete effectively.” Motivated by these cases, we consider a multiproduct setting where upstream suppliers sell their products through competing distributors offering one stop-shopping convenience to consumers. We show the emergence of products that distributors cannot afford not to carry if their rivals do. A supplier of such products can exploit this must-have property, along with tying and exclusivity provisions, to monopolize adjacent, otherwise competitive markets. Policy interventions that ban tying or exclusivity provisions may prove ineffective or even backfire.

How Costly are Cartels?

How Costly are Cartels?

 

Flavien Moreau

International Monetary Fund (IMF)

Ludovic Panon

Bank of Italy

Abstract

We study the cost of cartels in an oligopoly model with heterogeneous firms, endogenous markups, and collusion. Cartels can amplify or dampen misallocation, by charging supracompetitive markups and reallocating demand towards non-colluding firms. We find that standard competitive oligopoly models understate the cost of markups under reasonable values for the intensity of collusion and cartel composition configurations. Using French micro data, our baseline calibration suggests that breaking down cartels would increase aggregate productivity by 1.1% and welfare by 2%. These numbers shed light on the aggregate importance of collusion.

Legitimate Objectives in Antitrust Analysis The FIFA Regulation of Agents and the Right to Regulate Football in Europe

Legitimate Objectives in Antitrust Analysis The FIFA Regulation of Agents and the Right to Regulate Football in Europe

Petros C. Mavroidis

Columbia University - Law School

Damien J Neven

Graduate Institute of International and Development Studies (IHEID)

Abstract

The paper considers FIFA’s regulation of the market for agents, which has been challenged in a number of proceedings. Following the judgments of the Court on the ESL, ISU and Royal Antwerp cases, if the proposed regulation involves a restriction by object, it cannot fall outside the scope of Article 101 TFEU because of its pursuit of a legitimate objective. Assuming that the regulation would involve restrictions by effects, the question arises of which legitimate objective can be appealed to in order for its restrictions to remain outside the scope of Article 101 TFEU. A review of the case law on the scope of legitimate objectives suggests that, even if the Court has not pronounced it clearly on the matter, those accepted by the Court are related to the public policy objectives that the undertakings under consideration are entrusted to pursue. Such a restriction appears to be a welcome safeguard against a potential dilution of the discipline of Article 101 TFEU. From this perspective, legitimate objectives that could justify restrictions of competition by effects associated with FIFA’s regulation of the market for agents should be found within the regulatory function entrusted to FIFA. Whether the objectives put forward by FIFA in terms of addressing moral hazard, adverse selection and hold up in the (labor) market for agents can be cast in those terms is far from clear.

The American Express Decision and Its Critics: Reflections after Five Years

The American Express Decision and Its Critics: Reflections after Five Years

David S. Evans

Market Platform Dynamics; Berkeley Research Group, LLC

Richard Schmalensee

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Abstract

The Supreme Court’s 2018 decision in Ohio v. American Express Co. (“Amex”) was its first involving two-sided platforms since the emergence of platform economics. As the Internet continues to facilitate the growth of two-sided businesses, cases involving them are likely to be both common and important. This essay first summarizes the core conclusions of the Amex decision and relates them to the economic literature. We then consider the main criticisms of that decision in light of platform economics. We argue that sensibly interpreted and applied the Amex decision can set the stage for the development of the case law on platforms in economically sound directions.

Situating Dynamic Competition: An Evolution Beyond Chicago

Situating Dynamic Competition: An Evolution Beyond Chicago

 

Nicolas Petit

European University Institute - Department of Law (LAW)

Bowman Heiden

University of California, Berkeley - Haas School of Business; Center for Intellectual Property, University of Gothenburg

Thibault Schrepel

Vrije Universiteit Amsterdam; Stanford University's Codex Center; University Paris 1 Panthéon-Sorbonne; Institut d'Etudes Politiques de Paris (Sciences Po)

Abstract

Dynamic competition defines an improvement path for antitrust law. Interested in competitive realities more than political activities, the growing body of scholarship studying dynamic competition wants to make antitrust diagnosis and analysis more accurate without sacrificing administrability. At a high level, the dynamic competition approach appears to some as a twenty-first-century equivalent of the Chicago School of antitrust. This article shows that the analogy is only partially correct. Unlike the Chicago School of antitrust law, the dynamic competition scholarship is innovation oriented, empirical, enforcement friendly, and interdisciplinary. More generally, dynamic competition is the natural evolution for all systems of antitrust law that reassess doctrine in light of the progression of economic and technical understanding of competition.

Expelling the Economists From EU Merger Control

Expelling the Economists From EU Merger Control

 

Jorge Padilla

Compass Lexecon

Abstract

In this essay I discuss the claims and evidence in a recent paper, which has received significant attention in the media and the policy debate. The paper finds that “hired economic consultancies” play a key role in a new lobbying strategy – spamming DG Comp with submissions of low quality in order to exploit the regulator’s limited resources and the informal requirement to respond to all submissions. I review the empirical analyses allegedly supporting the conclusion. I then discuss the likely implications of the policy measures that are being advocated in light of such findings. I conclude with a few constructive ideas about how to improve the way in which economics and economists contribute to the enforcement of competition law.

Towards a Legal Theory of Digital Ecosystems

Towards a Legal Theory of Digital Ecosystems

 

Ioannis Lianos

University College London - Faculty of Laws

Klaas Hendrik Eller

University of Amsterdam

Tobias Kleinschmitt

Humboldt University Berlin

Abstract

This article undertakes a legal conceptualization of digital ecosystems, analyzing their formation, functioning, and regulatory implications in a contextual manner. Our approach, informed through a comparative analysis of digital ecosystems across sectors and geographies, rejects the currently dominant narrative in regulatory debates in the digital economy, a ‘natural order rhetoric’, and adds nuance to its nascent critique, a ‘power rhetoric’. The ‘natural order rhetoric’ assumes the superiority of private ordering over instituted processes such as regulation. This framing understands the private governance of ecosystems as ‘given’, rather than the product of a deliberate corporate strategy of keystone firms to gain rents, and hence argues for regulatory restraint. We expose the intellectual traditions behind this argument as unable to identify the essence of ecosystems as a novel mode of organization, and juxtapose an alternative framing: A ‘power rhetoric’ which is attuned to the manifestations of private power and means of control, both formal and informal, legal and technological, and that highlights the influence of central actors within these ecosystems which require regulatory intervention. We contend that the ‘power rhetoric’ has the right intuitions, but remains reductionist and inflexible in its perception of the role of private governance regimes that are necessary for digital ecosystems to function and produce social value.

We advocate for a third way, a broader framework premised on facilitating institutional change that may be socially satisfactory according to the circumstances and combines the capabilities of both public and private governance. Our conceptual inspiration comes from typologies of governance in (primarily industrial) Global Value Chains (GVCs) which we adjust to the context of digital ecosystems. Through a series of case-studies of existing ecosystems, we test the resulting typology and illustrate the role of concrete legal mechanisms, contractual terms, as well as soft and technological governance in creating and maintaining significant power imbalances in ecosystems, with keystone firms capturing disproportionate surplus value from collective innovation efforts and creating “externalities” at the societal level. We survey recent regulatory and antitrust law interventions in the EU, and UK, tantamount to a new era of digital regulation, and evaluate their engagement with systemic risks connected to the rise of certain ecosystems. We conclude that an approach of progressive institutional reform—cognizant of the political economy of technology regulation and grounded in an understanding of ecosystems as complex adaptive social systems is necessary to reflect a broader set of values in digital capitalism.

Antitrust Market Definition: the Hypothetical Monopolist and Brown Shoe

Antitrust Market Definition: the Hypothetical Monopolist and Brown Shoe

 

Herbert Hovenkamp

University of Pennsylvania Carey Law School; University of Pennsylvania - The Wharton School

Abstract

The purpose of antitrust law is to control monopoly. As a result, it should employ a test that identifies monopoly accurately. That identification is the function of market definition. This brief essay evaluates the two most popular methodologies for market definition, namely, the hypothetical monopolist test (HMT) and the so-called “Brown Shoe” factors articulated by that 1962 decision. Operationally, the HMT is superior in virtually every way. The Brown Shoe factors are nearly always overinclusive, underinclusive, or irrelevant. For that reason most courts have embraced the HMT, as well as the federal enforcement Agencies, including in the 2023 Merger Guidelines. Their most significant limitation is that they depend on sales and substitution data. As a result, poorer alternatives must be used when these data are not available.

Regulating Discriminatory Pricing in the Presence of Tacit Collusion

Regulating Discriminatory Pricing in the Presence of Tacit Collusion

Zongsen Yang

The Chinese University of Hong Kong, Shenzhen

Xiao Lei

HKU Business School, The University of Hong Kong

Pin Gao

School of Data Science, The Chinese University of Hong Kong, Shenzhen

Abstract

Price-setting algorithms have facilitated widespread awareness-based price discrimination, in which firms charge high prices to customers unaware of alternative choices and low prices to those in competitive markets. This unethical behavior has increased customer complaints and prompted policymakers to enact fairness regulations in response. However, while limiting price discrimination may improve consumer welfare under genuine competition, it also affects firms' incentives to form tacit collusion, another regulatory concern arising from the proliferation of pricing algorithms. We develop an analytical model to examine the interplay between fairness regulation and tacit collusion, and discuss its impact on consumer welfare and policymaking. Firms utilize customers' product unawareness to implement price discrimination and decide whether to collude by comparing profits from collusion and deviation. We then explore the consequences of price fairness regulation on the sustainability of algorithmic collusion. For homogeneous products, fairness regulation can substantially weaken collusion, potentially rendering it unattainable. However, for differentiated products, strict fairness inadvertently supports collusive behavior, harming consumer welfare. In this case, mild fairness permitting moderate price differentiation can prevent market collusion and optimize welfare. We conduct a numerical experiment using simple Q-learning algorithms to demonstrate the realism of our analytical findings. To address fairness-induced collusion, we propose a novel approach that randomizes over the fairness levels, achieving the desired fairness in expectation. Our randomized policy is effective in both obstructing collusion and improving consumer surplus. Overall, our study emphasizes the importance of a nuanced approach to regulating discriminatory pricing in the presence of tacit collusion.

Cartels in public procurement: a reassessment

Cartels in public procurement: a reassessment

Alberto Heimler

Abstract

Bidding markets differ from all others because the objective of a cartel is not simply to raise prices, but also to ensure that each colluding firm gains some benefit. As a result, in most bid rigging cartels colluders rotate as adjudicators. The resulting bidding strategies give rise to anomalies in biddings that could be detected by the bid organizers. This is very important because leniency programs are unlikely to be very effective: dismantling a cartel is very seldom beneficial for the possible leniency applicant since she would renounce to all future profits without much gain in return. Furthermore, in public procurement cartel collusion is in many jurisdictions both an administrative and a criminal violation and “confessing” being part of bid rigging becomes too risky. This is why the recent EU ECN+ Directive has eliminated the possibility of criminal sanctions in public procurement cartels. The change is too recent for it to have had any significant effect. As a result, the bulk of bid rigging cartels continues to be discovered through reports by bidding authorities. However, in order to promote more reporting, the structure of incentives has to change. For example, the money saved from a cartel should at least, in part, remain with the administration that helped discover it and the reporting official should reap a career benefit. In any case, competition authorities should create a channel of communication with public purchasers so that the public purchasers would know that informing the competition authority on any suspicion at bid
rigging is easy and does not require them to provide full proof.

Procompetitive Effects in EU Competition Law

Procompetitive Effects in EU Competition Law

Stavros Makris

University of Glasgow, School of Law; LSE Law; Wageningen Universtiy; European University Institute, Department of Law (LAW); SciencesPo - Sciences po Paris Law School

Abstract

The purpose of this study is to flesh out how EU competition law has evolved with regard to the concept of procompetitive effects. This study engages in doctrinal analysis of how the notion of procompetitive effects has been used by the EU Courts. It argues that the Courts are using four analytical criteria to infer procompetitive effects that combine the notions of efficiency, consumer welfare, and rivalry understood as competitive pressure. Subsequently, it identifies the legal role of procompetitive effects: such effects can function as counter-indicators to a 'restriction of competition' finding or as justifications of a prima facie anticompetitive conduct. A key takeaway of this study is the observation that procompetitive effects have been gaining an increasingly more prominent role as counter indicators. The chapter closes with an analysis of the potential reasons explaining this development.

Collusion, Price Discrimination and Retailer Bond

Collusion, Price Discrimination and Retailer Bond

Heiko A. Gerlach

University of Queensland - School of Economics

Abstract

This paper analyzes cartel formation in a supply chain where upstream firms sell to two retailers who are heterogenous in their marginal retail cost. Colluding upstream firms price discriminate in favor of the more efficient downstream firm. This increases the difference in the retailer's profit between upstream collusion and competition and creates a bond with the colluding upstream firms.
This bond weakens the retailer's incentive to accept deviation offers and allows the cartel to implement prices above cost for any strictly positive value of the discount factor. A vertical merger with the more efficient retailer makes consumers worse off as the cartel can sustain higher prices.
A merger with the less efficient retailer disrupts the cartel and is pro-competitive when retailer asymmetry is sufficiently strong.

Back to the Future: Merger Review Outside the Merger Regulation

Back to the Future: Merger Review Outside the Merger Regulation

Sven Voelcker

Latham & Watkins; University of Goettingen (Göttingen)

Abstract

In 1989, the Council gave the European Commission a clear and limited legislative mandate for the control of concentrations, stipulating, among other things, that (i) the Commission’s competence must be limited to large transactions based on clearly defined turnover thresholds; (ii) the EU Merger Regulation alone should apply to transactions; and (iii) transactions must be reviewed within tight statutory deadlines. Since its first proposal in 1973, the Commission has been seeking broader powers, which the Council has consistently refused. Yet the Commission has re-interpreted Article 22 of the EU Merger Regulation to effectively give it the power to “call in” transactions below the thresholds (already contained in its 1973 proposal and rejected by the Council), advocated for Member States’ ability to apply the EU antitrust rules to concentrations, and developed procedural tools and practices (including the concept of “upfront buyer” commitments) that allow it to far exceed the strict statutory time limits in practice. It is time for a reset to align the Commission’s practice with its legislative mandate.

Do Connections to the U.S. President Enable Regulatory Capture? Evidence from Antitrust Merger Reviews

Do Connections to the U.S. President Enable Regulatory Capture? Evidence from Antitrust Merger Reviews

Claire Liu

University of Sydney

Jared R. Stanfield

University of Oklahoma; Financial Research Network (FIRN)

Abstract

Corporate and political leaders often display strongly overlapping networks. We identify the shared social and professional activities of individual corporate directors and the U.S. President, and examine whether directors’ personal ties to the President affect a firm’s value through regulatory enforcement. Using close presidential primary outcomes as repeated shocks to a firm’s political access, we confirm that directors’ personal ties to the President significantly enhance shareholder value. We demonstrate that a channel of this value is through regulatory capture. Firms connected to the U.S. President as well as the FTC and DOJ officials experience a significantly reduced likelihood of regulatory challenge from antitrust merger reviews. Conversely, bidders connected to the President’s within-party political opponent and those with politically connected industry rivals experience a higher likelihood of regulatory challenge. Overall, our study shows that political connections can lead to regulatory capture in the context of antitrust enforcement.