Tuesday, July 31, 2007

An Anti-Monopoly Law for China – Scaling the Walls of Protectionist Government Restraints

Posted by D. Daniel Sokol

Eleanor_foxGovernment restraints are under-explored among US antitrust scholars.  I am finishing off a draft of an article on this issue myself but more on that at a later posting.  Eleanor Fox of NYU Law School, whose path-blazing work on international antitrust helped to promote this area of scholarship, recently uploaded a forthcoming essay for the Antitrust Law Journal titled An Anti-Monopoly Law for China – Scaling the Walls of Protectionist Government Restraints.  This is an essay worth reading because the implications of government restraints on competition extend far beyond China.

ABSTRACT: Most nations deal with abusive government restraints and abusive private restraints by different instruments of law. This essay demonstrates, however, the integral nature of public and private protectionist restraints. It provides examples of integrated analysis in the United States, the European Union, and the World Trade Organization. It argues that a Chinese effort to address administrative economic abuses in its competition law would be progressive and helpful to the Chinese economy, especially in the absence of a Chinese “Commerce Clause.” Also, it argues for fuller coverage of state-owned monopolies. SOEs and provincial and local protectionist restraints are among China's most significant obstacles to realizing the benefits of markets.

July 31, 2007 | Permalink | Comments (0) | TrackBack (0)

New Competition Law Center at George Washington University

Posted by D. Daniel Sokol

With Bill Kovacic leading the fight against anti-competitive conduct at the FTC as a Commissioner, George Washington University Law School has not been particularly active in antitrust scholarship in the last few years while Georgetown and George Mason law schools have hosted a number of excellent conferences.  However, thanks to George Washington Law alum and plaintiff's attorney Michael D. Hausfeld of Cohen, Milstein, Hausfeld & Toll, P.L.L.C., on July 10, 2007, a United States District Court judge granted a motion to award a portion of a class-action settlement in the case of Diamond Chemical Company, Inc. v. Akzo Nobel Chemicals B.V. and Atofina Chemicals, Inc, et al. to George Washington University Law School to endow a Center for Competition Law.  This is a a $5.1 million Cy Pres award.  See details in the press release here.  No director for the Center has yet been announced.  I wonder if this center will be as plaintiff friendly in its programming as the Institute for Consumer Antitrust Studies at the Loyola University Chicago School of Law run by Spencer Waller.  On Spencer, if you have not yet read his Thurman Arnold: A Biography (NYU Press, 2005), this would make for excellent summer reading.

July 31, 2007 | Permalink | Comments (0) | TrackBack (0)

Ninth Annual Sedona Conference on Antitrust Law & Litigation

Posted by D. Daniel Sokol

The excellent 9th Annual Sedona Conference on Antitrust Law and Litigation, to be held October 25-26 at the Sedona Hilton Resort & Spa. This annual retreat has become a high point on the antitrust community calendar -- a chance to engage in meaningful dialog with leading lawyers, judges and scholars. To maintain the quality of this unique experience, the organizers limit registration to 40 but strive for the widest possible diversity within that small group.   Details are below.

Download sedona20antitrust20conference20press20release.pdf

July 31, 2007 | Permalink | Comments (0) | TrackBack (0)

Monday, July 30, 2007

Antitrust Analysis of Sports Leagues

Posted by D. Daniel Sokol

Gregory_pelnar With Barry Bonds approaching Hank Aaron's all time home run record in baseball, I thought this might be a good time to think about antitrust in sports more generally.  One recent contribution to the field is that of Gregory Penlar, a VP at economic consulting firm Lexecon.  His study is Antitrust Analysis of Sports Leagues: Part 1 - What is a Sports League and How are They Analyzed Under the Antitrust Laws.

ABSTRACT: This paper is the first of a four-part series on the antitrust analysis of sports leagues. It presents a brief history of the major North American sports leagues, discusses significant differences between leagues, reviews the cartel, joint venture, and natural monopoly theories of sports leagues, summarizes the antitrust laws (and their exemptions), discusses the steps involved in conducting per se and rule of reason analyses, and describes the types of economic evidence used to conduct an antitrust analysis of a sports league.

July 30, 2007 | Permalink | Comments (0) | TrackBack (0)

Sunday, July 29, 2007

What to Do About Unilateral Refusals to License?

Posted by D. Daniel Sokol

Jeffrey K. MacKie-Mason, Arthur W. Burks Professor of Information and Computer Science at the University of Michigan, takes the position in his new working paper What to Do About Unilateral Refusals to License? that policy makers should take economics more seriously in how they think about antitrust/IP and the issue of unilateral refusals to license, particularly in statutory language.  I wonder if in part the problem is that some courts do not understand the complex economics of innovation.

ABSTRACT: There are well-known circumstances under which unilateral refusals to license will cause harm to competition, that is, will lower consumer welfare. However, when the strategy is profitable, refusals to license also increase the returns to intellectual property, and thus limitations on them will reduce the incentives for firms to invest in innovation. The optimal balance between innovation incentives and protection against static monopoly harm is not knowable to any reasonable degree of precision. Economists may be able to identify some special cases in which the desired rule is unambiguously knowable, but these cases will be few.

Given a policy or legal rule, economists can help interpret and apply the rule. Analysis of recent legal statements on the treatment of refusals to license shows that some of the current confusion and frustration in this area can be attributed to failure to formulate the rules in terms of the economic purposes of the underlying statutes. Some attempts to delineate a boundary between cases in which intellectual property protection is absolute and those in which antitrust restrictions may be imposed are based on logical or semantic distinctions that are not related to the economic issues. These attempts will fail to resolve the confusion.

July 29, 2007 | Permalink | Comments (0) | TrackBack (0)

Saturday, July 28, 2007

Capacity Building Out of Fines Imposed in Antitrust Cases?

Posted by D. Daniel Sokol

Pradeep Mehta of CUTS reports on what one suggestion did to an otherwise sleepy meeting at the most recent UNCTAD Intergovernmental Group of Experts meeting:

Every year, UNCTAD deliberates on Competition Law and Policy under an Intergovernmental Group of Experts (IGE) platform. But, it is more often a conference of nearly 100 competition learners and practitioners. Other than that, many make long and formal speeches, from which one has to dig out expert knowledge. However, many sessions are focused on special topics, and those are really illuminating.

Usually these meetings are non-controversial, but at the one held in mid-July, the Czech Republic stirred up a storm, by proposing that a special fund for competition policy and law capacity-building be created out of fines imposed in antitrust cases to be deployed in poor countries.

The Czechs argued that the possibility of improving a company’s image in this manner could be attractive to competition offenders and would thus be beneficial for developing countries.

The UCP is expected to contribute significantly to poverty alleviation and increase the competitiveness of developing countries”, said the Czech delegate at the meeting. “The UPC would also have an educational effect, as the infringer could contribute to a fund designed to support competition systems in developing countries. The proposed UCP might also provide a basis for further discussions on links between the strengthening of competition and providing support to developing countries in finding practical solutions for their most pressing problems”.

The Zambian delegate supported it, but there were a few opponents, who raised some concerns, which included the USA.

The Turkish delegate said: “While the UCP might be a good way of raising funds for projects in developing countries, the opportunity to choose investment in developing countries rather than paying fines might become an incentive for violation and even encourage enterprises to engage in anti-competitive practices more often than they would have in the absence of such a programme”. However, Turkey will be willing to participate in the programme.

It was necessary to apply a number of caveats to the proposal from the viewpoint of its contribution to effective deterrence, whether it might distort investment incentives, and it aid policy implications. The Czech Republic might first test its implementation at the national level before it could be considered for application to other countries”, noted the US delegate associating his concerns with other similar views.

France expressed concerns regarding possible extraterritorial application of the law, the consequences relating to sanctioning mechanisms, institutional machinery and appeal procedures, and verification of use of the proceeds of the UCP.

The UK delegate had the last word, in wisely summarizing their views, that they did not have the opportunity to study the interesting proposal in detail, and that it should be a subject of broader consultations involving various relevant government agencies, such as finance, development and foreign affairs.

It was heard in the corridors that it was in fact the US, which had first suggested such a fund a few years ago. In US itself, quite often unclaimed fines are put into a trust account to pursue education and research on competition law issues.

July 28, 2007 | Permalink | Comments (0) | TrackBack (0)

Recent Evolutions in Antitrust Enforcement: A Comparative Perspective

Posted by D. Daniel Sokol

Alberto Heimler, Director of Research at the Italian Competition Authority and the Chairman of Working Party 2 on “Competition and Regulation,” of the Organization for Economic Co-operation and Development (OECD) always has something insightful to say about antitrust.  He recently provided his analysis on Recent Evolutions in Antitrust Enforcement: A Comparative Perspective at a conference celebrating the tenth anniversary of the Romanian Competition Council held in Bucharest, Romania.

July 28, 2007 | Permalink | Comments (0) | TrackBack (0)

Friday, July 27, 2007

Bundled Rebates as Exclusionary, Not Predatory

Posted by D. Daniel Sokol

Brennan110 Tim Brennan, back to the University of Maryland-Baltimore from a stint at the Canadian Competition Bureau has a thought provoking new working paper that proposes a new test to address rebate programs titled Bundled Rebates as Exclusionary, Not Predatory.

ABSTRACT: Prevailing tests for whether bundled rebate programs are anticompetitive, including the recent Antitrust Modernization Commission Recommendation 17, are based on whether some incremental or total price in the rebate program is less than some appropriate incremental cost. This test is based upon an error - that rebate programs, and exclusionary conduct more generally, should be treated like predation cases. Analyses supporting this perspective err in treating the buyers as end users rather than competing complement providers, as they are in all the leading U.S. and Canadian cases. Instead, rebate programs should be assessed on the basis of whether they raise the price of a complement, such as retailing or distribution.

This suggests a different two prong test: Does the rebate cover a competitively significant share of a complement market, and if so, what effect does the rebate have on the price rivals have to pay to obtain the complement? This test allows the use of merger guideline approaches, ignores (for the most part) cost-based comparisons, and does not require prior dominance in the primary market. In assessing this alternative approach, we look at when practices are exclusionary, compare rebates to explicit exclusive dealing, discuss distinguishing exclusionary from predatory rebates, assess the limits of "profit sacrifice" approaches in exclusion cases, and propose share-based remedies to recognize
vertical efficiencies.

July 27, 2007 | Permalink | Comments (0) | TrackBack (0)

What Do Brits Think About Cartels?

Posted by D. Daniel Sokol

A new working paper, Survey of Public Attitudes to Price-Fixing and Cartel Enforcement in Britain, by Andreas Stephan at the University of East Anglia Centre for Competition Policy reveals British attitudes towards cartels.

ABSTRACT: The paper reports on results from a public survey on attitudes to collusion and cartel enforcement in Britain. Respondents demonstrate an understanding that price-fixing is harmful and should be punished. While there is strong support for high corporate fines and naming and shaming, only 1 in 10 Britons think individuals responsible should be imprisoned. Weak perceptions of the severity of price-fixing are confirmed by only 6 in 10 people considering such practices to be dishonest. Sex and age strongly influence attitudes. Education and newspaper readership have less of an effect, indicating poor information dissemination. Only 20% would report their employer's involvement in price-fixing without guarantees of anonymity and/or a reward: 14% would not report at all for fear of consequences. Public opinion is divided as to whether leniency programmes are justifiable. Respondents consider public enforcement to be more important that compensating parties injured by cartels.

July 27, 2007 | Permalink | Comments (0) | TrackBack (0)

Paul Caron - My Hero

Posted by D. Daniel Sokol

Caron Antitrust often struggles with how to address innovation.  However important the relation of antitrust is to innovation, I want to focus this blog post on innovation that has no specific relevance to antitrust.  Today is the 50th birthday of Paul Caron, a law professor and innovator.  Paul, a tax professor at the University of Cincinnati College of Law, turns 50 today.   Paul's vision was to revolutionize the dissemination of legal information and discourse over the internet through the creation of the Law Professor Blog Network.  With over 40 blogs across the spectrum of legal issues (including this one), Paul has succeeded beyond his wildest dreams.

Happy birthday Paul!

July 27, 2007 | Permalink | Comments (0) | TrackBack (0)

Thursday, July 26, 2007

The Oligopolistic Pricing Problem - A Suggested Price Freeze Remedy

Posted by D. Daniel Sokol

Guy Sagi of Netanya Academic College, Hebrew University School of Law has a new paper out -- The Oligopolistic Pricing Problem - A Suggested Price Freeze Remedy.

ABSTRACT: In this paper I set forth an antitrust remedy for the oligopolistic pricing problem. Oligopoly pricing resembles a repeated prisoners' dilemma game. Each firm has an incentive to moderately lower its price and thus increase its sales at its competitors' expense. However, each firm knows that its rivals would promptly discover such deviation and follow suit shortly. I therefore propose the implementation of a price freeze scheme in oligopoly markets by which an oligopolist that significantly lowers its price would freeze its rivals' prices at their previously higher oligopoly level for a defined period of time. A firm that decides to deviate from the previous oligopoly price and thus activates the price freeze could earn a significant higher payoff than its competitors. The deviating firm will win large share of the market, if not all of it, at the expense of the other firms. This price freeze scheme, as I will demonstrate, would drive prices downward and create an incentive for oligopolists to set ax ante lower prices. Since in most cases the suggested price freeze will drive prices down, ex ante, without actual activations of the price freeze, the suggested scheme is expected to perform as an "invisible" remedy. Therefore, any potential problems and inefficiencies associated with an implementation of a price freeze should be considerably discounted.

July 26, 2007 | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 25, 2007

Is Antitrust/Competition Law or Industrial Organization Taught in Your Country?

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Posted by D. Daniel Sokol

I am surveying countries around the world that are not OECD members and not members of the EU to determine whether and at which universities are antitrust/competition law and/or industrial organization taught. 

Please respond to this post rather than email me directly with the following information:
University (specify department- e.g., economics department or law department)

For example, an entry may look like the following:
Universidad Diego Portales - law school
Competition law, seminar in competition law and intellectual property

There is a delay to posts (we attract lots of spam) so postings are filtered every day.

July 25, 2007 | Permalink | Comments (23) | TrackBack (1)

Pre-merger Notification Report Available

Posted by D. Daniel Sokol

The US antitrust agencies released the annual Pre-merger Notification Report.  According to the report, 1,768 premerger transactions were reported.  This is a 4 percent increase from last year.

July 25, 2007 | Permalink | Comments (0) | TrackBack (0)

$10,000 Swope Antitrust Writing Prize Announced

Posted by D. Daniel Sokol

Law firm Jones Day has announced that the competition has begun for the annual Swope Antitrust Writing Prize. The competition, which honors former Antitrust Division official and Jones Day partner Bill Swope's pioneering ability to clarify abstract and complex issues, is open to students currently enrolled in full- or part-time juris doctorate or more advance degree programs at U.S. law schools accredited by AALS and non-U.S. schools of equivalent standing, to current judicial clerks who have graduated from such programs, and to practicing lawyers who graduated from such degree programs in May 2002 or later.

One $10,000 prize and two $1,500 honorable mention prizes will be awarded. Winners will attend the 2008 Spring Meeting of the American Bar Association Antitrust Section in Washington as guests of Jones Day and be guests of honor at a Firm reception.

Judges will be looking for work that demonstrates the application of practical analysis to antitrust problems. Eligible papers will also be judged on quality of research, writing, and scholarship; originality; practicality; and relevance to the understanding and application of antitrust law and policy.

Papers must be the product of a single author's original thought and scholarship. Their length should be appropriate to the subject matter being addressed and must not exceed 15,000 words, including footnotes. Papers used for academic credit or submitted to law reviews or other journals are permitted, but they must have been submitted or published no earlier than January 1, 2007. An individual may submit only one entry.

The first page of each submission should include the paper's title, the author's full contact information, and an abstract of approximately 100 words. If the paper or a version of the paper was previously published, submitted for publication, or written for a course, details should be provided.

Papers should be submitted electronically to [email protected]. Entrants should attach the paper in Word, Word-Perfect, or PDF format and include full contact information in body of the e-mail body as well as on the attachment's title page. Receipt will be acknowledged by return e-mail. Winners will be notified on March 3, 2008.

July 25, 2007 | Permalink | Comments (0) | TrackBack (0)

Competition vs. Property Rights: American Antitrust Law, the Freiburg School and the Early Years of European Competition Policy

Posted by D. Daniel Sokol

One of the more fascinating papers I have read in the last few months comes from Nicola Giocoli of the University of Pisa Department of Economics.  The paper is titled Competition vs. Property Rights: American Antitrust Law, the  Freiburg School and the Early Years of European Competition Policy.

ABSTRACT: The goal of the paper is to investigate the extent of the influence of American antitrust tradition on the foundation and early years of European competition policy. This as part of a wider research program aiming at assessing the role of economic theory in the development of antitrust law and policy. My argument may be summarized in four propositions. First, by taking into account what I call the "competition versus property rights" dichotomy, it turns out that the economists' contribution to the historical evolution of US antitrust law has been smaller than usually believed. Second, as far as the foundation of EEC competition policy is concerned, the influence of the American antitrust tradition has, again, been less than what is commonly claimed. Third, a crucial role on the birth of EEC antitrust has been played by a law and economics argument based on the constitutional standing of competition rules, an argument put forward by the highly influential Freiburg School of Ordoliberalism. Fourth, the ordoliberal origin of EEC competition rules, when combined with the Community's integration goal, helps explain why the impact of the "competition versus property rights" dichotomy on European antitrust law has been limited and, contrary to the US, always solved more favorably to the "competition" pole than to the "property rights" one.

July 25, 2007 | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 24, 2007

Lipsky on the Future of RPM After Leegin

Posted by D. Daniel Sokol

Tad Lipsky of Latham & Watkins provides a thoughtful analysis of Leegin's implications, available here

July 24, 2007 | Permalink | Comments (0) | TrackBack (0)

New Zealand and Supermarket Competition

Posted by D. Daniel Sokol

Supermarket competition is a hot topic around the world (even when Whole Foods and Wild Oats are not involved).  Peter Hinton, a partner at Simpson Grierson in Auckland, New Zealand was kind enough to bring to my attention an interesting decision in New Zealand.  The New Zealand Commerce Commission issued a press release last week outlining the reasons for its decision to prevent the acquisition of The Warehouse Group Limited by either Foodstuffs co-operatives or to Woolworths Limited.  This is a situation in which a super center type store has transformed supermarket competition.  According to the press release:

On the 8th of June the Commission declined to grant clearance for either acquisition, on the basis that it was not satisfied that either of the proposed acquisitions will not have, or would not be likely to have, the effect of substantially lessening competition in relevant markets. Both applicants have lodged appeals against the decisions in the Wellington High Court’s supermarket retail market is already highly concentrated, and a reduction of players from three to two would substantially reduce competition, to the detriment of New Zealand consumers.

“Without the competitive threat offered by The Warehouse, Foodstuffs and Woolworths would not face the same incentives to reduce prices, and increase quality, service, and innovation” says Ms Rebstock.

“New Zealand’s supermarket retail market is highly concentrated by international standards.” “There are high barriers to entry in the supermarket retail market, as evidenced by the fact that, apart from The Warehouse, there has been no new entry into that market for 20 years, other than through acquisition.”

“Before The Warehouse’s entry to supermarket retailing, Foodstuffs and Woolworths operated in a duopoly,” Ms Rebstock says. “The purchase of The Warehouse by either company would return the markets to that state.”

Ms Rebstock says The Warehouse is uniquely placed to compete with the supermarkets because of its existing property portfolio, extensive distribution networks and established brand. The Warehouse would also have a significant advantage in being able to offer grocery and general retailing under one roof.

“The Warehouse already has the locations and the infrastructure to enable it to compete with Foodstuffs and Woolworths,” says Ms Rebstock. The Warehouse has opened Warehouse Extra “supercentres” in Whangarei and Auckland (Sylvia Park) that offer grocery and general retailing under one roof. It has plans for further Warehouse Extra stores, the next one opening in Te Rapa, Hamilton. “Overseas experience shows that such supercentres can be highly successful, and result in increased competition and lower prices for consumers,” Ms Rebstock says. Supercentres have been successful in markets in the UK, Europe, Asia, North America and South America.  One study showed that grocery prices in the supercentres of US retailer WalMart were 15-25 percent lower than prices in nearby supermarkets.

“The Commission’s view is that The Warehouse, both as an actual competitor in the local markets where it has opened supercentres, and as a potential competitor in markets where it might open more new supercentres, brings an important new source of competition.” Ms Rebstock says.

Ms Rebstock says the Commission would not be commenting further on the matter while appeals of the decision were before the High Court. The reasons are available on the Commission's website under Public Registers - Mergers and Acquisitions. Click on the Decision number in the right hand column. Applications.

On 21 December 2006 the Commission received an application from the three Foodstuffs co-operatives seeking clearance to acquire up to 100% of the ordinary shares in The Warehouse Group Limited. On 17 January 2007 the Commission received an application from Woolworths Limited seeking clearance to acquire up to 100% of the shares in, or assets, of The Warehouse Group Limited. Companies’ share of NZ supermarket sales. On an aggregated basis, Foodstuffs accounts for an estimated 56% of total New Zealand supermarket grocery sales, and Woolworths accounts for an estimated 44% of total New Zealand supermarket grocery sales.

Effects of duopolies. Duopolies protected by high entry barriers impede competitive outcomes in two main ways: by removing competition constraints leading to an increase in market power of the remaining firms acting independently (non-coordinated effects), and/or by changing the nature of competition in a way that makes tacit or express coordination between firms more likely, effective and stable (coordinated effects).

July 24, 2007 | Permalink | Comments (0) | TrackBack (0)

Monday, July 23, 2007

Call for Papers: Latin American Competition Policy Conference in Sao Paolo

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Posted by D. Daniel Sokol

  Latin American Competition Policy Conference
  Fundação Getulio Vargas
  São Paolo Brazil
  March 21, 2008

We invite the submission of theoretical, empirical, and policy-oriented papers from academics in law and economics on topics related to one of the two conference themes: (i) cartels, and (ii) competition advocacy in Latin America. The primary focus of the conference is on academic research that is country specific or region-wide. Additionally, we intend to organize a reaction session of competition agency officials on these issues.

Authors of accepted papers will receive reimbursement for travel related expenses (hotel, airfare, incidentals). Proceedings of the conference will be published in a book with a major academic publisher. To be eligible for submission, a paper cannot be previously published or accepted for publication. Papers may be submitted in any of the three conference languages: English, Portuguese or Spanish. Final publication of papers will be in English.

The initial deadline for abstracts and papers is September 5, 2007. At this initial date, authors may submit either an abstract or a paper and an abstract. Abstracts should be no more than 1,500 words. An author may submit more than one paper. However, any one person may present only one paper. All submissions will be refereed. Authors of accepted abstracts must submit a paper by February 1, 2008.

We expect to notify authors about acceptances by October 15, 2007.   

The number of accepted papers and the panel subjects will depend on the number, quality, and subject areas of the submitted papers.

Paper and abstract submissions should be sent to [email protected].  The conference website is available at http://law.missouri.edu/latin-am-antitrust/.

July 23, 2007 | Permalink | Comments (0) | TrackBack (0)

Resale Price Maintenance and Restrictions on Dominant Firm and Industry-Wide Adoption

Posted by D. Daniel Sokol

Should we rethink some of the presumptions on the use of market share thresholds in vertical merger anlysis?  In cases of RPM, possibly according to new research by Øystein Foros of the Norwegian School of Economics and Business Administration (NHH) - Department of Economics, Hans J. Kind of the Norwegian School of Economics and Business Administration (NHH) - Department of Economics, and Greg Shaffer of the  University of Rochester - Simon School in their new working paper Resale Price Maintenance and Restrictions on Dominant Firm and Industry-Wide Adoption.

ABSTRACT: This paper examines the use of market-share thresholds (safe harbors) in evaluating whether a given vertical practice should be challenged. Such thresholds are typically found in vertical restraints guidelines (e.g., the 2000 Guidelines for the European Commission and the 1985 Guidelines for the U.S. Department of Justice). We consider a model of resale price maintenance (RPM) in which firms employ RPM to dampen downstream price competition. In this model, we find that restrictions on the use of RPM by a dominant firm can be welfare improving, but restrictions on the extent of the market that can be covered by RPM (i.e., the pervasiveness of the practice among firms in the industry) may lead to lower welfare and higher consumer prices than under a laissez-faire policy. Our results thus call into question the indiscriminate use of market-share thresholds in vertical cases.

July 23, 2007 | Permalink | Comments (0) | TrackBack (0)

Saturday, July 21, 2007

Is There a Role for Market Definition and Dominance in an Effects-Based Approach?

Posted by D. Daniel Sokol

Emanuela Arezzo, a Research Fellow at Luiss University - School of Law in Italy takes a contrarian view to the importance of increased economic analysis/effects based approach in EU competition policy in her working paper Is There a Role for Market Definition and Dominance in an Effects-Based Approach?

ABSTRACT: As the old millennium was coming to an end, European Competition law began a massive  reform project aimed at modernizing each and every of its constituent parts. As well known, this ambitious project started with the introduction of Regulation n. 2790/1999 on vertical restraints, and its accompanying Guidelines, it followed with the Guidelines on horizontal cooperation agreements, and made all its way up till the review of the Merger Regulation.

The underlying leitmotif of these reforms has been to introduce a more economics-oriented approach to the assessment of competition cases. In practice, these reforms have resulted in a progressive erosion of per se rules in favour of the more flexible rule of reason which leaves the floor open to case by case considerations and seems better suited to take into account the appropriate circumstances (especially of economic nature) of the controversy at issue.

The turn has come now for abuses of a dominant position to go under review to determine the extent it should conform to the new mainstream trend which calls for a more substantive recourse to economics insights into the assessment of unilateral practices.

As we are about to see, European Commission's (and European competition authorities' in general) treatment of abuse cases has attracted a good deal of criticism for being rather formalistic and rigid and hence inapt to sufficiently take into consideration the economic circumstances of the cases, in particular to weigh the anticompetitive effects apparently caused by the conduct against the likely positive pro-competitive (or, more precisely, pro-consumer) efficiencies which, in the end, could tilt the balance and reverse an initial finding of abuse.

In order to do justice to these points of criticism, the European Commission has drafted a Discussion Paper on the application of Article 82 to exclusionary abuses and has called for open discussion on it. Unfortunately, the document, mainly because of its guideline style, is rather confusing and obscure. A coherent suggestion for a new approach, however, can be more easily inferred by reference to the report presented by the Economic Advisory Group for Competition Policy (hereinafter EAGCP) which the Commission has surely considered in the course of preparing its Discussion Paper.

The effects-based approach (so called to differentiate itself from the current formalistic one) apparently carries a strong economic imprint and seems aimed at correcting the early methodology adopted by European agencies and courts by introducing two substantive changes. On the one hand, the competition authorities would be asked to prove, with strong economics-based analysis and studies, the anticompetitive harm produced by the presumably abusive conduct. This with specific regard to the ultimate effect that the practice will assert on consumer welfare. On the other hand, because it is extremely complex to discern the pro- from the anti-competitive aspects within the same conduct and, as economists strongly assert, pro-competitive effects can also arise from a unilateral conduct adopted by a dominant firm, the new approach would grant defendants the faculty to plead an efficiency defense against a finding of abuse.

This change would appear, at least at a first glance, in line with the assessment of agreements in restraint of competition under Article 81 and would make the overall assessment of competition law cases uniform. Nonetheless, as I will try to demonstrate, such alignment with current assessment of (horizontal or vertical) agreements between firms is nor welcome or desirable.

July 21, 2007 | Permalink | Comments (0) | TrackBack (0)