Friday, August 17, 2007

Do Developing Countries Need Competition Law and Policy?

Posted by D. Daniel Sokol

Fmarcos Francisco Marcos of Instituto de Empresa Business School asks provocatively Do Developing Countries Need Competition Law and Policy?  According to Marcos, there are critical antecedents to a functioning competition law in the developing world.  I agree and have argued this myself here and here

ABSTRACT: When international institutions (UN, IMF, The World Bank, OECD) evaluate the conditions countries should meet in the road towards economic development and prosperity, the formulation and implementation of an effective competition policy (CP) appears always as one of the major requirements.

Besides, in the case of young and developing nations the relevance given to CP is stressed by several specific programmes aimed at helping them in the adoption of competition laws and the establishment of effective competition policies. A considerable amount of resources is committed by international organizations to this end.

Looking at some of the experiences of developing countries adopting competition laws in the last few years and also of countries resilient to the establishment of a CP, this paper analyzes whether the efforts of international institutions are justified and evaluates the conditions upon which CP may root.

Several prior institutional conditions are needed before the implant of CP may be successful (rule of law, State's commitment to respect a free market economic system). Institutional factors aside, widespread consciousness about the benefits of the market system and acceptance of the merits of free competition in the market by the business community and by the consumers are needed. This paper analyzes all those conditions and stresses the institutional background affecting how CP should be arranged in practice.

August 17, 2007 | Permalink | Comments (0) | TrackBack (0)

Guess What? Whole Foods Does Compete Against Traditional Supermarkets and WalMart

Posted by D. Daniel Sokol

Judge Paul Friedman has ruled in the Whole Foods/Wild Oats case and has denied the FTC's preliminary injunction motion to block the merger.  Alas, the order is under seal so we cannot gleam particular insights on market definition questions yet.


Paul_t_denis James_j_fishkin_2 Scheffman

Here at Antitrust and Competition Policy Law Prof Blog, we salute the winning team and in particular: Paul Denis of Dechert, Jim Fishkin of Dechert, and David Scheffman of LECG.  Well done!  I am sure that discussion of this case will make for an interesting panel at the ABA Antitrust Section Spring Meeting next year.  I suspect that John Mackey is happily blogging about this victory and blogging under his own name. 

August 17 Update:  The FTC has appealed the ruling.  The saga continues...

August 17, 2007 | Permalink | Comments (0) | TrackBack (0)

Innovation and Dynamic Efficiencies in Merger Review

Posted by D. Daniel Sokol

Andrew Tepperman and Margaret Sanderson of CRA International have written a report for the Canadian Competition Bureau titled Innovation and Dynamic Efficiencies in Merger Review.

Executive Summary: This report addresses issues that arise when incorporating innovation issues into the merger review process.  Competition based on innovation, whereby firms attempt to gain market share through the introduction of new or improved products or services-dynamic competition-is at the heart of many modern industries.  Accordingly, an understanding of dynamic competition is relevant for merger review. When incorporating innovation issues into merger review several considerations arise.  First, there is no settled economic model that relates the extent of market concentration to the extent of innovation and as a result, we do not know how concentration today affects firms’ levels of innovative activity, which differs from the clear link that exists between concentration and pricing.  Second, innovation is highly uncertain, making it much more difficult to measure and quantify than price and output.  Third, these measurement problems make it difficult to quantify a merger’s likely effect on the rate or outcome of innovation.  Finally, innovative activity is a form of up-front investment, and prices must be expected to exceed short-run marginal cost to justify the investment, on average.  As a result, static measures of economic efficiency that fail to account for the flow of surplus from the introduction of new products cannot tell the whole story when innovation is important to the merger review.  An appropriate treatment of efficiency must recognize these dynamic gains, without ignoring the importance of competitive rivalry among firms within markets at a point in time.

With these considerations in mind, in this report we propose a framework that allows for the effect of merger transactions on innovation to be incorporated into merger review, where the current approach found in the Merger Enforcement Guidelines is not sufficient to fully capture dynamic competition.  The current approach found in the Guidelines works well for addressing when mergers are likely to lead to a reduction in either actual or potential competition in an existing goods market.  The framework we propose is aimed at addressing future goods markets, while making use of information available today. It should be of assistance to competition authorities faced with mergers that may raise competition issues in future goods markets, or that may involve future innovations which obviate any competition concerns in existing goods markets.

The framework proceeds by making the following inquiries:

  1. Is innovation important in the industry in question?
  2. Can affected future products and firms be identified?
  3. Would the merging firms compete against each other in those future markets but for the merger?
  4. Would the merger reduce the existing level of innovation?
  5. Would the merger result in an increase in prices in the future market above what they would be without the merger?

In light of the special considerations associated with innovation, application of this framework is likely to be highly fact specific. A number of factors that can be taken into account under each of these five inquiries are discussed.

The merger review process also calls for gains resulting from improved innovative conditions to be considered as a potential offset to static efficiency losses resulting from price and output changes. Such dynamic efficiency considerations may be difficult for parties to prove, but could be expected to arise from a number of plausible sources.  In particular, merging firms may be able to eliminate duplicative research and development programs, or may be able to realize economies of scale or scope in research and development. Again, a dynamic efficiency analysis must be case-specific in nature and would require a careful consideration of factual material. 

August 17, 2007 | Permalink | Comments (0) | TrackBack (0)

Thursday, August 16, 2007

Limited Access to Airport Facilities and Market Power in the Airline Industry

Posted by D. Daniel Sokol

Are you paying too much for your airline ticket?  New research suggests that if you fly out of an airline hub, the answer is yes.  The hub premium is 8 percent for travel out of a hub and 6.4 percent for travel into a hub.  Some competition advocacy by the FTC that would support a free market model for landing slots is in order.  The paper by Federico Ciliberto and and Jonathan W. Williams of the University of Virginia Department of Economics that demonstrates these interesting findings is titled Limited Access to Airport Facilities and Market Power in the Airline Industry.

ABSTRACT: We investigate the role of limited access to airport facilities as a determinant of prices, and more specifically of the hub premium, in the US airline industry. To this purpose, we use original data from competition plans that airports are required to submit to the Department of Transportation in compliance with the Aviation Investment and Reform Act for the 21st Century.

First, we find that the unconditional premium on the median fare is 12.5 percent for tickets out of a hub, and 6.8 percent for tickets into a hub. After controlling for the markup that airlines can charge because they offer a differentiated product, the hub premium is 8 percent for travel out of a hub and 6.4 percent for travel into a hub. Second, the unconditional and conditional hub premia are increasing in the price of the ticket. The hub premium for the median fare is higher than the premium charged for the 25th percentile fare and much smaller than the premium for the 75th percentile fare. Third, we find that the conditional hub premium is completely explained away once we control for airline specific barriers to entry and product differentiation. Exclusive access to and dominance of gates at the market endpoint airports as well as subleasing terms and restrictions are key determinants of the hub premium.

Finally, we propose a solution that is simple to implement for reducing the gate premium in a large number of dominated markets. We show that the average fare across all markets in our study would fall by at least 5 percent if airports enforce stricter subleasing terms between airlines. For the markets in our data, the median loss in consumer welfare from the current very lax subleasing terms is $52,208 per quarter in each market. This is a large welfare loss for the consumers.  

August 16, 2007 | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 15, 2007

What Happened After the FTC Blocked the Heinz/Beech-Nut Merger?

Posted by Luke Froeb

In 2000, the FTC challenged a merger between and Beech-Nut and Heinz, the second- and third-largest sellers of baby food in the US, but still much smaller than market leader Gerber. At issue in the case were the synergy claims of the merging parties [click here to continue].

August 15, 2007 | Permalink | Comments (0) | TrackBack (0)

Below-Cost Price Alignment: Meeting or Beating Competition

Posted by D. Daniel Sokol

Michal Gal of the University of Haifa has posted a new working paper Below-Cost Price Alignment: Meeting or Beating Competition.  She suggests that rules should be different regarding online businesses than traditional businesses.

ABSTRACT: May a dominant firm justify below-cost pricing by simply arguing that it aligned its prices with those of its rivals? In this essay I show that generally the answer is negative. I also argue, however, that such a rule should not be categorical and that in some circumstances a below-price meeting competition defense should be allowed, in order to protect competition. Such an exception is necessary in order to take account of the special economic characteristics of dynamic industries which differ from the brick-and-mortar industry model that assumes that scale economies are small and entry barriers are low. The article exemplifies these arguments by using the EU recent France Telecom case.

August 15, 2007 | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 14, 2007

CUTS Competition, Regulation and Development Research Forum Call for Papers

Posted by D. Daniel Sokol

CUTS invite submission of theoretical, empirical and policy-oriented research papers for the second research cycle of the biennial Competition, Regulation and Development Research Forum (CDRF). CUTS Institute for Regulation and Competition ( has envisioned this long-term research programme on competition policy and regulatory regimes in the developing world, with a strategy of motivating developing country researchers to undertake research on issues relating to problems that developing countries face in implementing competition and regulatory regime.

The theme for the second research cycle is `Institutional Issues covering Political Economy and Governance Constraints in Implementing Competition and Regulatory Regimes in the Developing World'. The focus will be on policy-oriented evidence-based research grounded on theoretical underpinnings. The papers will be published in a volume by a reputed publishing house. Authors of accepted papers will be  given honorarium for each paper.

For further details, please log on to:

August 14, 2007 | Permalink | Comments (0) | TrackBack (0)

What Does the American Antitrust Institute Do?

Posted by Bert Foer

Because the AAI offers an expansive perspective on antitrust that does not generally command the adherence of those in power, it is difficult to demonstrate that we have had much influence on the Bush Administration or the federal courts. Our white papers on current investigations (e.g., the cruise mergers, the washing machine merger, the cotton seed merger, various grocery mergers) have helped inform the media and have seemingly pushed the agencies into greater transparency, without necessarily affecting the outcome. Our increasingly frequent amicus briefs to state and federal appellate courts (and occasionally to a trial court, as in the Whole Foods case recently) have provided expert support for pro-enforcement positions, often  with an angle that is not otherwise being offered. Although some critics have wrongly suggested that we are the voice of the plaintiffs' bar, because our positions are typically supportive of an enforcement strategy, it is more accurate to say that the AAI's presence in a case or investigation represents an effort to keep the flame of strong and vigorous competition policy alive in an environment that is often hostile.

Perhaps our most important contribution to the antitrust scene has been our conferences and symposia. We do not focus on "updating your professional knowledge" or "how to help your client" but rather on creative thinking about the direction of policy. A series of brainstorming sessions at Northeastern University resulted in an AAI book, Diana Moss (ed.), Network Access, Regulation, and Antitrust. The papers we generate for our conferences end up as the substance of law review symposium issues-- over a dozen so far. We have put subjects like buyer power and retail category management on the antitrust map. In addition to our major national conference, we typically run an annual multi-disciplinary symposium on a cutting edge topic (our most cutting edge was titled "The Science of Complexity and Antitrust" and it has led us to an on-going brainstorming series on systems competition), and an annual workshop on electricity restructuring that brings together year after year for off-record discussions, a representative group of stakeholders. We believe that the body of literature we have been creating will eventually contribute to an alternative national policy.

The AAI is not at this point a membership organization. We rely heavily on our Advisory Board, which is an activist body, and the Senior Fellows, who are a sort of inner circle of the Advisory Board. We urge those who are interested in our work to sign up for e-bulletins on Volunteers for work on amicus briefs and policy topics can write to me at Deductible contributions can be made directly through the website, and we are always particularly interested in potential cy pres awards.

August 14, 2007 | Permalink | Comments (0) | TrackBack (0)

Monday, August 13, 2007

Working Paper on Vertical Restraints and Leegin

Posted by Shubha Ghosh

For those interested in commentary on Leegin and vertical restraints, I have posted a working paper on the topic available here.   

August 13, 2007 | Permalink | Comments (0) | TrackBack (0)

The American Antitrust Institute Approaches a Decade Celebration

Posted by Bert Foer

At its 2008 conference next June 18-19, the American Antitrust Institute (AAI) will celebrate its tenth anniverary. As far as I can tell, we are the first and still the only independent non-profit education, research, and advocacy organization to focus exclusively on antitrust. There are other non-profits that pay attention to antitrust and even some that share our post-Chicago, pro-enforcement attitude, but we remain unique in our mission, depth, and output. Our website,, has become a basic industry resource which is regularly visited by a high proportion of the antitrust community in the US and elsewhere. We operate as a virtual network of antitrust experts, centered on our high-powered and multi-disciplinary Advisory Board. See

One of our recent triumphs has been the production of a half-hour film, "Fair Fight in the Marketplace," and an accompanying website,, that contains the educational version of the film and a high school curriculum on antitrust, based on the film. The film recently won its second national award for documentaries. It is being shown on PBS stations and will, for example, be on WETA-TV in the Washington, DC, area at 4 pm on Sunday, August 26.

For our tenth year, we are making it a major project to produce a transition report on antitrust for the next administration. We will present it at our June conference and will hand off to the presidential campaigns and eventually to the next President's transition team, our recommendations and supporting white papers, which will be researched and written over the next nine months by a dozen committees of our Advisory Board.

AAI is governed by a five member Board: Professor Robert Lande of the University of Baltimore; Attorneys Robert Skitol of Drinker Biddle & Reath and Jonathan Cuneo of Cuneo Gilbert & LaDuca; economist Diana Moss, the AAI Vice President; and me, a reformed lawyer, enforcement official, and retail jeweler. AAI is not a membership organization but one can be added to our mailing list by going to the website and clicking the "e-bulletin" button.

August 13, 2007 | Permalink | Comments (0) | TrackBack (0)

Sunday, August 12, 2007

Do Organizations "Test" the Decisions They Make?

Posted by Luke Froeb

When his firm decided to introduce a Christmas menu into their restaurant chain, one of my students decided to test the profitability of the change by introducing it in only half the restaurants in his territory.  Click here for more.

August 12, 2007 | Permalink | Comments (0) | TrackBack (0)

Introducing Guest Blogger Bert Foer

Posted by D. Daniel Sokol

We are priviledged this week to have Bert Foer, president of the American Antitrust Institute, join us as a guest blogger.  Bert has had a long and interesting career in government, private law firms, and business.  Bert is the author of numerous articles, book chapters, and reviews on antitrust and competition policy. He is a graduate of the University of Chicago Law School, with an A.B. (magna cum laude) from Brandeis University, and an M.A. in political science from Washington University.  Bert will discuss AAI, it mission and some of its recent outputs, which span a number of important antitrust issues.

August 12, 2007 | Permalink | Comments (0) | TrackBack (0)

Saturday, August 11, 2007

Competition Policy in the Global Economy

Posted by D. Daniel Sokol

Spencer Waller of Loyola University Chicago School of Law has just uploaded a free online casebook on Competition Policy in the Global Economy.

As Spencer explains:

In general, it examines how the United States and other jurisdictions regulate competition among firms which do business abroad. This will include how competition policy regulates individuals and firms located outside the United States in their competition with United States firms as well as the rules governing United States firms. These materials are intended for use in a U.S. style law school class or seminar and designed to provide the base knowledge necessary to engage in sophisticated research in the field and to produce a research based paper of 20-25 pages in length. By necessity, these materials are in English and have primarily a United States focus. The value of an on-line casebook in this field goes beyond the merely the cost savings and convenience. It is also an opportunity for a collaborative exercise that will allow for the creation of a more in-depth and creative set of materials that can be done in traditional hard cover format. Use of the casebook for educational purposes with attribution is available on a royalty-free basis under a Creative Commons Attribution-Share Alike 3.0 United States License, available at I therefore invite any competition law teacher or scholar to submit additional chapters on other competition law topics or jurisdictions not covered in these materials for inclusion in future iterations of these materials.

August 11, 2007 | Permalink | Comments (0) | TrackBack (0)

Friday, August 10, 2007

Newest Issue of Antitrust Source

Posted by D. Daniel Sokol

The latest issue of the ABA Antitrust Section's Antitrust Source is now available.

August 10, 2007 | Permalink | Comments (0) | TrackBack (0)

Economic Development, Poverty, and Antitrust: The Other Path

Posted by D. Daniel Sokol

Fox Eleanor Fox of NYU Law School has a fascinating new article about the role of antitrust in economic development, Economic Development, Poverty, and Antitrust: The Other Path.

ABSTRACT: Antitrust law is a multi-faceted discipline. It guards against certain creations and misuses of economic power. It facilitates the functioning of markets. Sometimes it pries open closed markets, wresting them from public and crony control. In some jurisdictions it empowers David to compete against Goliath. In others, it shields David from being trampled by Goliath. In matters of antitrust, protection of the weak from the powerful is a refrain most loudly heard in connection with the asserted needs of developing countries.

Meanwhile, in developed countries, it is often insisted that antitrust is only “for efficiency,” defined as aggregate wealth and applied with the assumption that markets increase aggregate wealth. Developing countries retort that antitrust for developing countries must also address concerns of distribution and power. Developed countries rejoin that global efficiency demands that laws converge, and laws should converge toward that of the developed world, lest they protect inefficiencies, drive prices up, and increase risks of arbitrary enforcement power, defeating the promise of markets.

This article wrestles with this tension. It argues that antitrust should not be used to protect David from Goliath, but it may be used to empower David against Goliath. The article suggests factors, principles, queries and strategies that may help developing countries in their quest for an antitrust law that is fair and efficient for them.

August 10, 2007 | Permalink | Comments (1) | TrackBack (0)

Thursday, August 9, 2007

The Argentine Competition Law and its Enforcement

Posted by D. Daniel Sokol

Coloma1 A wonderful working paper (for my forthcoming edited book) by German Coloma of Universidad de CEMA titled The Argentine Competition Law and its Enforcement examines the complexities of Argentine competition policy.  It is a detailed and thorough analysis. More importantly, for those that cannot read Spanish, it is the first such English language treatment.

ABSTRACT: This article analyzes the basic characteristics of the Argentine competition law and the way in which it has been enforced in several important antitrust cases. We begin with a section that introduces the evolution of the law, followed by another section about the basic economic and legal principles underlying that law. The rest of the article describes the enforcement of the law, in a number of cases that involve collusive practices, exclusionary practices, vertical restraints, abuses of dominant position, and mergers.

August 9, 2007 | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 8, 2007

The Customer is Sometimes Right: The Role of Customer Views in Merger Investigations

Posted by D. Daniel Sokol

Following scholarship by DOJ's Ken Heyer on listening to customers in merger investigations, Darren S. Tucker, Scott L. Reiter, and Kevin L. Yingling write on similar issues with specific application to two of the most important merger decisions in recent years, both of which resulted in losses by the US antitrust agencies- Arch Coal (FTC) and Oracle (DOJ).  The new article, forthcoming in the Journal of Competition Law and Economics is The Customer is Sometimes Right: The Role of Customer Views in Merger Investigations.

ABSTRACT: Antitrust enforcement officials and practitioners generally agree that customers should have a prominent role in the merger review process. The question of the appropriate level of reliance that competition authorities and courts should give to customer testimony has been the subject of considerable debate since the Arch Coal and Oracle decisions. This paper contains a comprehensive< discussion of the use of customer testimony throughout the U.S. merger review process, from the initial merger notification filing to injunction proceedings in federal court. We discuss the benefits from and problems with the use of customer testimony, including how these problems have led to litigation losses for the U.S. antitrust authorities. What is the appropriate role of customer testimony and when is it most probative? We contend that customers can provide investigators and judges with information regarding several relevant issues in an acquisition, including industry structure, geographic and product demand substitution, and acceptance of potential market entrants. In contrast, customers will have considerably less information relevant to the likelihood of entry, the extent of any merger-specific efficiencies, and the validity of a failing firm defense. They will almost never be qualified to offer legal conclusions, such as the proper market definition or likely competitive effects of a proposed merger. We conclude that courts have generally remained consistent in their reliance on customer testimony, including in the Arch< Coal and Oracle cases, and that customer testimony, despite its limitations, should and will continue to be important at each stage of the merger review process.

August 8, 2007 | Permalink | Comments (0) | TrackBack (0)

Competition Policy/Antitrust Chapters in Free Trade Agreements

Posted by D. Daniel Sokol

Sokold For a change, I am posting on my own work.  A few months ago I presented a paper for the Chicaog Kent Law School conference on Latin American Law and Development.  I produced a paper in which I note that in many ways, the extensive talk about the role of antitrust in international trade is just talk.  These chapters in trade agreements lack dispute settlement and hence, the commitments are not binding.  I title my paper Why is this Chapter Different from All the Others? An Examination of Why Countries Enter into Non-Enforceable Competition Policy Chapters in Free Trade Agreements.

ABSTRACT:  There has been an explosion in the past 10-15 years of bilateral and regional free trade agreements in Latin America (together preferential free trade agreements or “PTAs”). The purpose of PTAs is to increase trade, regulatory and investment liberalization. As trade liberalization requires more than just a reduction of tariffs, PTAs include “chapters” in a number of areas of domestic regulation. These chapters that address domestic regulation, create binding commitments to liberalize domestic regulation that may impact foreign trade. Among chapters that address domestic regulation, many of the Latin American PTAs include a chapter on antitrust/competition policy. Until now, the effectiveness of such chapters has remained unanswered. This article undertakes the first empirical analysis of Latin American antitrust/competition policy chapters in PTAs.

To understand the dynamics of PTAs, this article begins with some context of Latin American development. First, the article provides an overview of the process of liberalization in Latin America. It then describes how domestic antitrust fits within Latin American liberalization. Thereafter, it describes the limits of domestic antitrust in Latin America. The article then describes competition policy chapters within Latin American PTAs. The standard practice in PTAs is to create binding commitments that have third party adjudication for potential disputes. The choice of international institutions, such as PTAs, is based on the perception of the relative strength of PTAs over purely domestic approaches. A comparison of the institutional alternatives to PTAs illustrates that this perception is not born out by the facts. This article finds that antitrust chapters within PTAs go against the standard practice of binding commitments. Competition policy chapters, unlike other chapters of the same trade agreement, lack binding dispute settlement. All Latin American PTAs lack dispute settlement for core antitrust issues of mergers, collusive agreements and monopolization within the competition policy chapters. This departure from the standard PTA practice is more striking given that other chapters in the same trade agreement have binding dispute resolution. These other chapters include some competition element to them, such as services and intellectual property. The remainder of the paper explores the dynamics of these chapters, including why PTAs treat antitrust differently from other areas of domestic regulation.

August 8, 2007 | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 7, 2007

Unfit to Be Tied: An Analysis of Trident v. Independent Ink

Posted by D. Daniel Sokol

Nalebuffb Barry Nalebuff of Yale's School of Management always has something interesting to write.  In his most recent working paper, Unfit to Be Tied: An Analysis of Trident v. Independent Ink, he analyzes how to address tied sales by a firm with a patent.  He argues that a per se rule for tying  in such cases is valid.

ABSTRACT: In Illinois Tool Works and Trident v. Independent Ink, the Supreme Court overturned its longstanding per se rule against tied sales by a firm with a patent. Henceforth, market power will have to be demonstrated, whether or not the firm has a patent. Upon such demonstration, a tied sales contract will still be a per se antitrust violation. Our review of the case raises the question of why firms engage in tied sales and what is the antitrust issue. While the courts have focused on the leverage of market power, this case suggests a different concern: with complementary goods (such as a printer and ink), tying is used to engage in price discrimination via metering. The antitrust issue is that consumers will be harmed because the firm, by metering, is able to be a more effective monopolist and thereby extract more of the consumer surplus. And while perfect price discrimination may be efficient, there is no presumption that more imperfect price discrimination improves efficiency. As for the legitimate objectives, such as risk sharing, they can be met via direct metering. This suggests the wisdom of maintaining the per se rule against tied contracts when market power has been demonstrated.

August 7, 2007 | Permalink | Comments (4) | TrackBack (0)

Monday, August 6, 2007

Will Negotiating Teams From the Same Firm Compete Against One Another?

Posted by Luke Froeb

The FTC ruled that a merger between two hospitals in Evanston reduced competition and raised prices to managed care organizations (MCO's). To see how such a merger could affect price, consult your favorite managerial economics textbook:

Click here for more

August 6, 2007 | Permalink | Comments (0) | TrackBack (0)