Antitrust & Competition Policy Blog

Settlements in U.S. v. SBC Communications and U.S. v. Verizon Communications Approved

Posted by D. Daniel Sokol

The U.S. District Court for the District of Columbia  approved settlements in U.S. v. SBC Communications and U.S. v. Verizon Communications after Tunney Act review.  Hat tip to Bill Schur of the ABA Antitrust Telecom Section listserve for providing the documents.  You can download the opinion and final judgment below:
Download TunneyAct_Op_March2007.pdf and Download Tunney_Final_Judgmnt_March2007.pdf . 

A DOJ Antitrust statement by Tom Barnett is available here.

Competition, Regulation and Development Research Forum

Posted by D. Daniel Sokol

For those who did not travel to India for “Political Economy Constraints in Developing Countries: A Research Symposium,” part of the CUTS Competition, Regulation and Development Research Forum, you can watch a webcast of the conference here. My co-author Michael Nicholson presented our paper Technical Assistance for Law and Economics: An Empirical Analysis in Antitrust/Competition Policy.  Eleanor Fox of NYU, Simon Evenett of University of St. Gallen and Joseph Hur of the Korean FTC provided comments on the paper.

Competition and Net Neutrality

Posted by D. Daniel Sokol

One critical area of competition policy is that of competition advocacy regarding legislation and regulation.  While we typically think of competition advocacy as an antitrust agency function, non-government stakeholders can also play an important role in highlighting the competitive effects of legislation and regulation.  One of the hot button issues in the antitrust and technology interface is that of net neutrality.  A number of highly regarding economists recently posted their statement on net neutrality at the  AEI Brooking Joint Center on Regulation.

Economists' Statement on Network Neutrality Policy

William J. Baumol, Martin Cave, Peter Cramton, Robert W. Hahn, Thomas W. Hazlett, Paul L. Joskow, Alfred E. Kahn, Robert E. Litan, John Mayo, Patrick A. Messerlin, Bruce M. Owen, Robert S. Pindyck, Vernon L. Smith, Scott Wallsten, Leonard Waverman, Lawrence J. White.

Network neutrality is a policy proposal that would regulate how network providers manage and price the use of their networks. Congress has introduced several bills on network neutrality. Proposed legislation generally would mandate that Internet service providers exercise no control over the content that flows over their lines and would bar providers from charging particular services more than others for preferentially faster access to the Internet. These proposals must be considered carefully in light of the underlying economics. Our basic concern is that most proposals aimed at implementing net neutrality are likely to do more harm than good.

Crane on Antitrust Antifederalism

Posted by D. Daniel Sokol

Next month Chicago Loyola hosts the 2007 Loyola Antitrust Colloquium.  One of the real treats of the conference will be to hear Daniel Crane's presentation of his forthcoming article Antitrust Antifederalism. 

Abstract: U.S. antitrust law has been profoundly influenced by a historical aversion to direct federal superintendence of corporations. This ideological impulse began with Antifederalist opposition to Madison's proposal to grant Congress a general incorporation power and carried over to the Progressive Era where it defeated a proposed corporate regulatory model of antitrust. The antitrust antifederalist impulse thus enabled the rise of the competing crime-tort model, in which antitrust law creates a freestanding norm of industrial competition rather than a regulatory apparatus for policing the capital-concentrating effects of incorporation statutes. As it has interacted with the general features of the U.S. civil litigation apparatus, this crime-tort conceptualization has produced a variety of pathologies including an excessive focus on locating a “bad act” rather than specifying appropriate corporate structure; delegation of adjudicatory decision-making to generalist judges and juries rather than industrial policy specialists; the predominance of private enforcement over public enforcement; extension of antitrust law to non-corporate subjects, particularly the working class; and interference with federal competition policy by parochially interested state regulators. The one major exception to antitrust antifederalism's continuing dominance - the pre-merger notification system adopted in 1976 - reveals the advantages of the corporate regulatory model and suggests some steps that could be taken to rationalize the institutional structure of antitrust law.

US vs. EU merger regimes: US is more predictable and tougher on strong dominance and oligopoly cases

Posted by D. Daniel Sokol

I recently covered US vs. EU merger control systems in my international and comparative antitrust class.  A cross Atlantic team of scholars has compared the two systems with interesting results in a paper entitled Comparing Merger Policies: The European Union versus the United States.

Abstract: Merger regulation affects large transactions in the market for corporate control in both the European Union (EU) and the United States (US). This paper compares the merger enforcement policies of the two regions using descriptions of the merger investigations prepared by the staff of the EU and the Federal Trade Commission. The policies are found to share a common foundation with substantial weight being placed on both the market structure characteristics and the likelihood of effective entry.
US enforcement was broader-based in that it scrutinized markets that might be characterized as raising oligopoly, unilateral, and dominant firm concerns, while the EU policy focused largely on market dominance. Neither regime is found to be stricter in all circumstances, since the market and firm characteristics impact the enforcement decisions differently. However, we find that the regime is more predictable (given our measures of the explanatory variables), tougher on strong dominance cases and oligopoly cases, but more permissive on weak dominance cases.

ABA Antitrust Spring Meeting

Posted by D. Daniel Sokol

Whether for the antitrust/competition policy academic or practitioner, the ABA Antitrust Section Spring Meeting is the most important conference in the world.  If you have not yet registered, there is still time to do so.  I should also mention that the various antitrust section committees do an excellent job in terms of producing interesting and timely publications.  I wonder if there is an ABA section that produces more publications on a yearly basis

So that you do not think that I am a hypocrite, I won't be at the spring meeting because my wife has banned my travel as we await the birth of our second child in late May/early June.  Our first child arrived two weeks early, so we have been put on notice.  For the same reason, I won't be in Moscow for the ICN annual meeting.  As a result of focusing on baby issues, I have begun to think about buyer power (my own) when it comes to the market for disposable diapers in Madison.

Deciphering The Oral Arguments in Leegin

Posted by Shubha Ghosh

The Supreme Court heard oral arguments today, and the exchange was spirited and stimulating. The text of the oral argument can be dowloaded here:  Download 06-480.pdf  Here are some thoughts:

(1) There are four Justices clearly in favor of retaining the per se rule against minimum retail price maintenance.  Justice Breyer emphasized the historic role of limiting the use of retail price maintenance, as evidenced by the ban on fair trade in 1975, in promoting the development of the retail sector.   His questioning of Theodore Olsen, representing the petitioner Leegin, was fairly vigorous and pointed, citing a 1966 study by B.S Yamey that paralleled all of the arguments made in favor of overruling Dr. Miles.  Justices Ginsburg, Stevens, and Souter also expressed skepticism over the rule of reason treatment of minimum RPM.

(2) Justice Scalia was clearly in favor of reversing.  As is well known, he urged the grant of cert, and he questioned Robert W. Coykendall, representing the respondent Kay's Kloset, perhaps more intensely than Justice Breyer grilled the petitioner.  Justice Scalia's questioning emphasized the need for sacrificing low price for high service and the importance of that sacrifice for interbrand competition. Interestingly, Justice Stevens questioned how far one would go with that argument: would it justify a horizontal agreement among competitors in order to prevent free riding and promote quality?

(3) The votes of Justices Roberts, Kennedy, Alito, and Thomas are the most difficult to predict.  Justice Roberts questioning was the most evenhanded, challenging Mr. Olsen by pointing out the benefits of banning minimum RPM on the development of retail and challenging Mr. Coykendall by pointing out that many of the harms he identifies could be addressed through a rule of reason analysis.   Justice Kennedy expressed some skepticism with Mr. Coykendall's argument that the benefits of minimum RPM could be obtained through non-price restrictions and requirements for investment in quality and services.  He also referred to the per se approach as a cookie cutter approach in response to the respondent's similar characterization of the rule of reason.  Justice Alito's few questions, in some ways, were the most interesting.  They focused on the potentially conflicting views of large retailers, like WalMart and Target, and smaller retailers.  He asked why the larger retailers did not submit an amici supporting Dr. Miles if they were so much benefitted by Dr. Miles.   The respondent's answer was that large retailers were indifferent to the rule since they had the bargaining power to impose desirable terms on manufacturers, and it was smaller retailers who directly benefited from the per se rule.   Justices and advocates alike made references to the amici brief of Ping Golf Manufacturing Inc. which urged the reversal of Dr. Miles in order to promote competition at the retail level.

So what to predict?  With four votes solidly in favor and one against, Justices Breyer, Ginsburg, Souter, and Stevens need to win over one vote to uphold Dr. Miles.  Will Justice Kennedy prove to be the swing vote or will Chief Justice Roberts' love of precedent, super or otherwise, save Dr. Miles?   As Justice Souter stated in oral argument, the decision has the potential of changing the face of retailing in the United States.

An Alternative to HHI?

Posted by D. Daniel Sokol

In my comparative and international antitrust class, we just got through two classes on comparative merger issues.  The second class focused more heavily on issues of how different jurisdictions think about market definition questions.  I was very impressed with my students' ability to engage in very difficult conceptual issues.  This coming week we shift gears to questions of monopolization and will be very fortunate to have Microsoft Deputy GC Tom Burt address our class on comparative Microsoft cases.

On the issue of market power, Jerry Hausman of MIT's economics department and Greg Sidak of Georgetown Law School have just posted a paper that is worth reading entitled Evaluating Market Power Using Competitive Benchmark Prices Rather than the Hirschman-Herfindahl Index.

Abstract: Whenever feasible, market power determinations should rest on competitive benchmark prices rather than the typical market concentration approach. Government regulators in many countries have issued guidelines on the evaluation of market power in the merger context and other areas that define relevant markets and calculate market shares—along with a summary measure of market concentration, usually the Hirschman-Herfindahl index (HHI). However, competition authorities recognize that high concentration measures are generally not a sufficient condition to infer market power. Use of other structural factors in a market often does not lead to any clearer conclusion. We show that prices that consumers pay for the product in question often offer a superior quantitative measurement that leads to a clearer conclusion than the HHI approach. Further, because prices form the basis for the evaluation of consumer welfare (consumers surplus), they also provide important information for competition authorities, whose goal is typically the protection of consumer welfare. To demonstrate our argument, we examine a decision by the Irish telecommunications regulator, ComReg, which used the EU competition guidelines and the HHI approach to determine that Ireland's two largest mobile providers, Vodafone and O2, had joint dominance and were exercising significant market power. We demonstrate how our benchmark prices approach is superior to the HHI approach.

DOJ/FTC Single-Firm Conduct Hearings to Continue on March 28 and 29

Posted by D. Daniel Sokol

The hearings on the most difficult antitrust topic continue in DC.

March 28 Sessions                  

           The Objectives and Goals of Remedies in Section 2 Cases (9:30 A.M.–12:00 P.M.):      

Robert W. Crandall is a senior fellow in economic studies at the Brookings Institution.

David A. Heiner is the vice president and deputy general counsel for antitrust at Microsoft Corporation.

Per Hellström is chief of Unit C-3 at the European Commission’s Directorate General for Competition.

Abbott (Tad) Lipsky is a partner at Latham & Watkins LLP and a former Deputy Assistant Attorney General at the Department of Justice’s Antitrust Division.

Structural Versus Conduct Remedies (1:30 P.M.–4:30 P.M.):                   

Richard A. Epstein is the James Parker Hall distinguished service professor of law, faculty director for curriculum, and the director of the law and economics program at the University of Chicago Law School.

Franklin M. Fisher is the Jane Berkowitz Carlton and Dennis William Carlton professor of microeconomics, Emeritus, at the Massachusetts Institute of Technology.

Andrew Joskow is senior vice president of NERA Economic Consulting and a former Deputy Assistant Attorney General at the Department of Justice’s Antitrust Division.

Dietrich Kleemann is the head of the task force on ex post assessment of merger decisions at the European Commission’s Directorate General for Competition.

John Thorne is senior vice president and deputy general counsel at Verizon.             

March 29 Session   

           Remedy in the Face of Technological Change (9:30 A.M.–12:30 P.M.):

Michael Cunningham is general counsel at Red Hat Inc.

Renata B. Hesse is a partner at Wilson Sonsini Goodrich & Rosati.

Marina Lao is a professor of law at Seton Hall Law School.

William H. Page is the Marshall M. Criser eminent scholar at the University of Florida’s Levin College of Law.

Howard A. Shelanski is an associate dean and a professor of law at the University of California, Berkeley, Boalt Hall, and the director of the Berkeley Center for Law & Technology.

Hong Kong to Introduce Competition Law

Posted by D. Daniel Sokol

Yesterday, the Global Competition Review reported (password required) that Hong Kong likely will introduce a competition law.   The Report on public consultation on the way forward for Hong Kong's competition policy (available here) lays out a blueprint for the law including its rationale, functions and answers to key questions.

I think that the possible introduction of a competition law in Hong Kong and the recent adoption of a competition law in Singapore tells us something very important about the role of competition policy in the global economy.  These two jurisdictions often top various lists of the most market oriented economies in the world.  These jurisdictions also tend to be among the most trade open economies.  Yet, even in both of these jurisdictions, there is a sense that there is a need to create an agency to combat monopoly power and coordinated anti-competitive practices because the market cannot self correct easily against such practices.  The Singaporean competition law contains exemptions for state owned enterprises from the law.  My hope is that Hong Kong does not follow this approach.  Public restraints of competition may in fact be worse than private restraints because once such legislation/regulation is introduced, it becomes far more difficult to eliminate such anti-competitive conduct due to public choice problems.

My own thoughts on international antitrust can be found here.

Outsourcing Retail Category Management

Posted by D. Daniel Sokol

Yesterday during one of my frequent trips to the supermarket, I thought of category management.  Looking for some new antitrust scholarship in this area, I found Category Captainship: Outsourcing Retail Category Management by Mumin Kurtulus, a professor in the Operations Management group at Vanderbilt’s Owen School of Management and Beril Toktay, a professor of Operations Management at the College of Management of Georgia Tech.

Abstract: Retailers in the consumer goods industry often rely on a leading manufacturer for category management, a form of manufacturer-retailer collaboration referred to as category captainship. There are reported success stories about category captainship, but also a growing debate about its potential for anti-competitive practices by category captains. Motivated by conflicting viewpoints, the goal of our research is to deepen our understanding of the consequences of such collaboration initiatives between the retailer and only one of its manufacturers. To this end, we develop a game theoretic model of two competing manufacturers selling through one retailer that captures the basic tradeoffs of using category captains for category management. We consider two scenarios that are in line with traditional retail category management and category captainship. In the first scenario, the retailer is responsible for managing the category and determines retail prices and assortment. In the second scenario, we assume that the retailer delegates part or all retail category management decisions to one of the manufacturers in return for a target category profit, and implements its recommendations. We compare these two scenarios to investigate the impact of the transition on all stakeholders in the supply chain. We conclude with design recommendations on the scope and structure of category captainship.

I would be remiss if I did not mention Josh Wright’s substantial and important recent contributions in the analysis of competition issues in supermarkets. You can download his works here. 

Canadian Government to Review Country's Competition Policy

Posted by D. Daniel Sokol

According to Canadian newspaper The Globe and Mail, the Canadian government will review Canada's competition policy regime.  Given the importance of the discussions that have emerged in the US context from the Antitrust Modernization Committee, this is probably a good thing.  The Globe and Mail reports:

    [T]he government will have an “expert independent panel” do a comprehensive review of Canada's
    competition policies and report – before next year's budget – on options for future legislative
    amendments, the budget said. It cited the industry minister's policy direction to the Canadian
    Radio-television and Telecommunications Commission – instructing it to rely on market forces as
    much as possible – as a good start.

Arbitration of Antitrust Claims in the United States and Europe

Posted by D. Daniel Sokol

A new working paper suggests that antitrust arbirtration cases will tend to follow an EU rather than US law model.   The authors of the paper, Arbitration of Antitrust Claims in the United States and Europe, are Niccolo Landi and Catherine Rogers.  The paper can be downloaded here. 

ABSTRACT: Today, most countries have relinquished antitrust claims to the jurisdiction of arbitrators. While the expansion of arbitral competence can be seen as a global trend, it has not been an entirely uniform trend. The United States was the first country to allow international arbitrators the power to resolve statutory claims that implicate public policy, starting with securities fraud and antitrust claims, but later extending to RICO claims, claims involving patent validity and employment discrimination. In allowing these claims to go to arbitration, the U.S. Supreme Court originally suggested that the public policy interests implicated in antitrust arbitration can be safeguarded during award review, but that dicta has proven largely illusory in practice.

Meanwhile, other countries, particularly those with a civil law tradition in Europe, have been more circumspect and more circumscribed in allowing arbitration of antitrust claims in the first place, and more active in reviewing awards to ensure adherence with statutory objectives. While there is extensive commentary regarding the risks of allowing arbitration of mandatory claims, our focus in this Essay is instead on the narrower issue of the effect that different national approaches to arbitrability and award review have on competing national antitrust policies.

For many disputes, more than one antitrust regime can be applied because the extraterritorial reach of national antitrust laws of different jurisdictions overlap in international transactions. Our thesis is that, when faced with a conflict of laws question about the application of European versus American antitrust law, arbitrators will be inclined to systematically prefer European law since they know that failure to do so is more likely to result in an unenforceable award. The effects of this preference may not be enormous given noted convergences between U.S. and EU antitrust law, and it is likely be mollified in practice by skilled arbitrators who can often craft an award that is valid under both legal regimes. But there are some important areas in which U.S. and European antitrust laws produce different outcomes.

Boalt Hall Conference on Digital Rights Management (DRM)

Posted by Shubha Ghosh

I participated in a wonderful conference at Boalt Hall from March 9-10 on the current status and future of Digital Rights Management, a technological means to prevent the copying and distribution of digital content.   DRM has raised important issues in intellectual property (because of the passage of the Digital Millenium Copyright Act in 1998 that legally protects digital rights management) and in antitrust (because of the potential misuse of technological platforms to limit entry and competition).  The Boalt Hall Conference focused largely on consumer and competition issues raised by DRM, and there was much discussion scattered throughout the conference on Apple and the iPod technology, especially France's investigation into Apple's use of Fairplay to potentially limit competition through tying the distribution of songs to the hardware medium.  All the panels were superb, but particularly noteworthy were the panels (1) on the legal liability of SONY BMG for its software root kit that potentially harmed PC's and downloaded software and spyware without user notification and (2) on the need for legislation to mandate notice on DRM technologies.

I include here the keynote address (Download Rosch.pdf ) by FTC Commissioner Rosch  on the consumer protection and antitrust concerns raised by DRM.  His talk raised the prospect of Apple iPod potentially creating an application barrier to entry as in Microsoft.   I also include slides (Download Bechtold.pdf) of an excellent presentation by Stefan Bechtold of the Max Planck Institute on the role of competition law in regualting DRM.

The conference website which includes other materials can be linked here. 

Congratulations to Professor Pam Samuelson and the Berkeley Center for Law and Technology for such a terrific event. 

Competition and Innovation

Posted by D. Daniel Sokol

Richard Gilbert continues his important work in the antitrust-IP interface with a new working paper, entitled Competition and Innovation.

ABSTRACT: The Department of Justice and the Federal Trade Commission have frequently raised innovation concerns as reasons to challenge mergers. This chapter surveys the economic theories of innovation incentives and considers how the theory may inform antitrust analysis for merger investigations and other conduct that involve innovation. Competition can promote innovation by reducing the value of failing to invest in research and development. However, with non-exclusive intellectual property rights, competition can reduce innovation incentives by lowering post-innovation profits. There is some empirical support for these economic theories. The chapter concludes that economics can inform antitrust analysis for mergers and other conduct that could affect innovation, although it is important that antitrust analysis carefully consider the key factors that drive innovation incentives.

The Future of Monopoly and Monopolization

Posted by D. Daniel Sokol

The topic for this year's AAI Annual Conference (June 21, 2007) is The Future of Monopoly and Monopolization.  More information is available here.  The academic literature, recent cases across jurisdictions and several recent policy reviews in this area – by the AMC, EC, Canadian Competition Bureau, ICN, OECD, and FTC/DOJ – highlight the problems commonly perceived in the antitrust community in monopolization.  Yet, in all of these efforts, we lack consensus probably more than in any other area of antitrust of how to craft effective responses.

The AAI conference has a number of interesting panels that articulate a series of questions and responses from academics and practitioners who are suspicious of some of the assumptions and policy implications of Chicago School antitrust.

Rivalry Among Supermarket Retailers

Posted by D. Daniel Sokol

What is it about Sokol and posting on supermarkets?  Yes, this is a pet issue.  It probably has to do with a number of related factors:

1. I have a very high metabolism rate (At 6'3, I weigh 152 lbs.), so we are often running out of food. 

2.  I have a pregnant wife and a two year old daughter.  Between the two of them, we are at the supermarket quite a bit.

3.  Supermarkets make for very interesting academic study.

I focus the rest of this post on the third of these topics (though if my mother was guest blogging, she would focus on the first-- she is convinced that I need to put on some weight and has been since I was 16.  Then again, she still calls sometimes to make sure that I am dressing warmly during the winter).

A recent article that appeared in the American Journal of Agriculture Economics by Timothy Richards and Stephen Hamilton examines Rivalry in Price and Variety Among Supermarket Retailers.

ABSTRACT: Recent theoretical models of retail competition suggest that product heterogeneity is critical to retail price and variety strategies. This article provides empirical evidence on supermarket retailers' price and variety strategies using a nested constant elasticity of substitution (NCES) modeling framework. The model is estimated using chain-level scanner data for four major grocery chains in a large, urban West Coast market. The results show that retailers compete for market share using both price and variety. While they all tend to follow moderately cooperative pricing strategies, the extent to which they follow cooperative strategies in variety is less homogeneous.

Drug Patent Settlements Between Rivals: A Survey

Posted by D. Daniel Sokol

Scott Hemphill of Columbia University Law School has an important new paper out on a subject that has been at the forefront of many policy discussions in recent years on patent settlements.  His paper is entitled Drug Patent Settlements Between Rivals: A Survey.

ABSTRACT: This survey provides a detailed account of patent settlements reached between innovator drug companies and their generic rivals over the past fourteen years, and the antitrust suits and investigations initiated in response. Twenty-nine settlements of patent litigation involving twenty drugs fall within the scope of the study. Three basic patterns emerge from the data. First, antitrust activity in this area has continued to expand, including more than a dozen pending antitrust suits and agency investigations. Second, repeat players have emerged. For example, a single generic firm has reached settlements with respect to eight different drugs. Third, drug patent settlements have grown more sophisticated. A second wave of settlements, in which a generic firm provides value to the innovator that is distinct from delayed entry, complicates antitrust evaluation of the agreements.

Trans-Atlantic Antitrust Dialogue

Posted by D. Daniel Sokol

The British Institute of International and Comparative Law will hold its 7th Annual Trans-Atlantic Antitrust Dialogue from May 1 to May 2.   Registration and conference details are available here.   Topics include:

1. Phase 1 merger remedies;
2. What is consumer harm?;
3. Private enforcement and consumer redress;
4. Consistency of decisions across jurisdictions … or chaos?;
5. Markets working poorly;
6. Agencies roundtable;
7. Substantive Merger Analysis in Recent Cases: Old Theories, New Theories, Empirical Evidence and Efficiency Defences; and
8. What is your theory of harm?

Contestability and Regulation Revisited and Applications to Pro-Competitive Mergers

Posted by D. Daniel Sokol

Yesterday in my seminar, we focused on procedural issues in international merger control, including agency coordination, increased harmonization of standards and approaches, and why divergences remain.  Next week we focus on comparative substantive merger analysis.  Helping out my class on these difficult issues are Joe Krauss of Hogan & Hartson (yesterday) and Ken Heyer of DOJ (next week).  As a comment on teaching pedagogy, the class has found that  real world enforcers and practitioners (both the lawyers and economists) have been extremely beneficial and insightful in rounding out the more theoretical readings and case analysis.

On the topic of mergers, Michael Ryan of the University of Hull Business School has a new working paper on SSRN entitled Contestability and Regulation Revisited and Applications to Pro-Competitive Mergers.

ABSTRACT: The purpose of this paper is to revisit the contestability idea and to formalize distinctions between industrial contestability and market contestability (analogous to those between industrial and market diversification) as well as the definition of regulated contestability. Applications to mergers and merger policy are then developed in a context of positive spillovers, with reference to brand enhancing effects and with reference to R&D and other cost reducing effects. A major conclusion of the paper is that, far from raising barriers to entry, mergers may have contestability enhancing effects and in such cases should be actively encouraged by regulators.