Antitrust & Competition Policy Blog

Competition Law and the Regulation of Cross Border Mergers and Acquisitions: A Story of Conflict, Cooperation and Convergence

Posted by D. Daniel Sokol

Ariel Ezrachi of Oxford's Law Faculty provides his analysis of Competition Law and the Regulation of Cross Border Mergers and Acquisitions: A Story of Conflict, Cooperation and Convergence.

ABSTRACT: Cross-border merger control has traditionally been a difficult subject for multilateral co-operation, let alone harmonization. The multitude of interests at stake and the heterogeneous multilateral environment mean that attempts to reduce inefficiencies stemming out of multi-jurisdictional merger review face resistance at various levels. This paper examines the friction generated by the misfit between national merger control and cross-border economic activity. It considers the domestic nature of merger control and the way it affects the feasibility and effectiveness of cooperation in merger regulation. It explores the contribution and limits of binding and voluntary multilateral initiatives in advancing convergence in this area. It further considers the role of bilateral cooperation in a multilateral setting. The discussion echoes the challenges for undertakings and agencies operating in the current sub-optimal environment of multiple enforcers. It identifies voluntary multilateral frameworks as the most promising vehicle for advancing future convergence, and provides insight as to the catalysts to, and limits of, these voluntary frameworks.

EC’s Non-Horizontal Merger Guidelines Are Out

Posted by D. Daniel Sokol

See here.

Tacit Collusion, Firm Asymmetries and Numbers: Evidence from EC Merger Cases

Posted by D. Daniel Sokol

An interesting new paper comes from Stephen Davies and Matt Olczak, both of the University of East Anglia Competition Law Centre, titled Tacit Collusion, Firm Asymmetries and Numbers: Evidence from EC Merger Cases.

ABSTRACT: The purpose of this paper is to identify empirically the implicit structural model, especially the roles of size asymmetries and concentration, used by the European Commission to identify mergers with coordinated effects (i.e. collective dominance). Apart from its obvious policy-relevance, the paper is designed to shed empirical light on the conditions under which tacit collusion is most likely. We construct a database relating to 62 candidate mergers and find that, in the eyes of the Commission, tacit collusion in this context virtually never involves more than two firms and requires close symmetry in the market shares of the two firms.

The Control of Porting in Two-Sided Markets

Posted by D. Daniel Sokol

A grad student in econ at Cambridge, Rufus Pollock, brings up some interesting points in his working paper The Control of Porting in Two-Sided Markets.

ABSTRACT: A sizable literature has grown up in recent years focusing on two-sided markets in which economies of scale combined with complementarities between a platform and its associated 'software' or 'services' can generate indirect network effects (that is positive feedback between the number of consumers using that platform and the utility of an individual consumer). In this paper we introduce a model of 'porting' in such markets where porting denotes the conversion of 'software' or 'services' developed for one platform to run on another. Focusing on the case where a dominant platform exists we investigate the impact on equilibrium and the consequences for welfare of the ability to control porting. Specifically, we show that the welfare costs associated with the 'control of porting' may be more significant than those arising from pricing alone. This model and its associated results are of particular relevance because of the light they shed on debates about the motivations and effects of actions by a dominant platform owner. Recent examples of such debates include those about Microsoft's behaviour both in relation to its operating system and its media player, Apple's behaviour in relation to its DRM and iTunes platform, and Ebay's use of the cyber-trespass doctrine to prevent access to its site.

Entry, Product Line Expansion, and Predation

Posted by D. Daniel Sokol

A new article by Vincenzo Denicolò (Professor of Economics, University of Bologna), Michele Polo (Professor of Economics, Bocconi University, Milan, Italy) and Piercarlo Zanchettin (Lecturer in Economics, University of Leicester, Leicester, United Kingdom) addresses Entry, Product Line Expansion, and Predation. 

ABSTRACT: In the Tourist-Caronte case in Italy, the incumbent, Tourist-Caronte, reacted to entry by entrant Diano by starting to supply a "damaged good" in the sense theorized by Deneckere and McAfee in 1996. We argue that in principle this strategy can be predatory, but it can also be an innocent response to entry. Specifically, the strategy of damaging the good leads to fiercer competition in the low segment of the market, which reduces the rents that the incumbent earns in the high segment, but may allow the incumbent to steal some of the entrant's rents. If this business stealing effect in the low segment of the market is sufficiently strong, the incumbent may find it profitable to expand its product line after entry, even if it does not have any predatory intent. We discuss the welfare effects of this strategy, and we contrast it with predation.

A New Route for Predation?

Posted by D. Daniel Sokol

With the ICN unilateral working group focusing on predation this year, I am a bit fixated on any papers on the subject.  Gunnar Niels of Oxera offers insights into the latest British case on the subject in his paper A new route for predation? The High Court ruling in the CCT v Arriva bus case.

ABSTRACT: Predatory pricing cases in the UK bus industry are legendary. Following a trend for commercial disputes to be settled by private actions rather than through competition authorities, Chester City Transport alleged that Arriva’s entry onto a number of its bus routes amounted to predatory behaviour. Earlier in 2007, the High Court found that, on the basis of economic evidence, despite a strong position in the area around Chester, Arriva could not be deemed to be dominant. This ruling has relevance for future Article 82 cases.

The Ex Ante Auction Model for the Control of Market Power in Standard Setting Organizations

Posted by D. Daniel Sokol

The ex ante auction model  may have its limits, according to Anne Layne-Farrar (LECG), Damien Geradin (Howrey and Tilburg law and Economics Center), and Jorge Padilla (LECG) in their paper The Ex Ante Auction Model for the Control of Market Power in Standard Setting Organizations.

ABSTRACT: RAND commitments ? i.e., promises to license on reasonable and non-discriminatory terms ? play a key role in standard setting processes. However, the usefulness of those commitments has recently been questioned. The problem allegedly lies in the absence of a generally agreed test to determine whether a particular license satisfies a RAND commitment. Swanson and Baumol have suggested that the concept of a 'reasonable' royalty for purposes of RAND licensing must be defined and implemented by reference to ex ante competition. In their opinion, a royalty should be deemed reasonable when it approximates the outcome of an ex ante auction process where IP owners submit RAND commitments coupled with licensing terms and selection to the standard is based on both technological merit and licensing terms. In this paper we investigate whether the ex ante auction approach proposed by Swanson and Baumol is likely to deliver efficient outcomes, both from static and dynamic standpoints. We find that given the peculiar characteristics of some of the industries where standardization takes place, in particular the many different business models adopted by innovating companies in those industries, the ex ante auction approach proposed by Swanson and Baumol may not always deliver the right outcomes from a social welfare viewpoint.

Revisiting Modernisation: The European Commission, Policy Change and the Reform of EC Competition Policy

Posted by D. Daniel Sokol

According to Hussein Kassim (University of East Anglia, Department of Politics) and Kathryn Wright (University of East Anglia Centre for Competition Policy) in their paper Revisiting Modernisation: The European Commission, Policy Change and the Reform of EC Competition Policy conventional wisdom as to the explanation of recent Modernization efforts of EC competition policy is incorrect.

ABSTRACT: The modernisation of EC antitrust rules timed to coincide with the 2004 enlargement of the European Union is widely recognised as an historic and revolutionary reform. According to the dominant view that has emerged in both law and political science, the change is to be explained in terms of the interest and ability of the European Commission to engineer a reform that, behind the guise of decentralisation to national authorities, has in practice extended its power and influence over the control of anti-competitive agreements. Drawing on original research, this paper contests the conventional wisdom and the image of the Commission as an imperialistic actor that underlines it. It argues that such a view dramatically overstates the Commission's power and that a more sophisticated explanation is required. First, the Commission was motivated more by changes in the thinking within an epistemic community of competition practitioners and lawyers than by an impulse to expand its authority. Second, contrary to the monolithic conception of the Commission on which the dominant view depends, the Commission was internally differentiated and the development of its reform proposals the product of internal negotiation and conflict, rather than the expression of an inner drive to expansionism. Third, scrutiny reveals the Commission to be a constrained organisation, rather than a body able to re-write competition law autonomously.

Price Dispersion and Class Certification in Antitrust Cases: An Economic Analysis

Posted by D. Daniel Sokol

James F. Nieberding (LECG) and Robin Cantor (Navigant Consulting) tackle the issue of price dispersion in antitrust litigations in their article Price Dispersion and Class Certification in Antitrust Cases: An Economic Analysis.

ABSTRACT: Differences in prices paid by putative class members (?price dispersion?) often become a focal point for class certification in antitrust matters. This paper discusses how an economic analysis of the existence, extent, and nature of price dispersion faced by plaintiffs seeking class certification may be informative even in matters thought to be particularly appropriate for class treatment (e.g., horizontal price-fixing). The existence of price variability among the products at issue can be addressed within the class framework if such price differences are systematic and able to be controlled for in any ?but-for? pricing analysis.

Vertical Separation v. Independent Downstream Entry in the Spanish Electricity Network: An Experimental Approach

Posted by D. Daniel Sokol

With the winter freeze soon approaching, it is time to consider how to create a more efficient electric sector. In their paper Vertical Separation v. Independent Downstream Entry in the Spanish Electricity Network: An Experimental Approach, Aitor Ciarreta (Universidad del País Vasco), Enrique Fatas (University of Valencia), Nikolaos Georgantzís (University Jaume I of Castellon) and Carlos Gutierrez-Hita (University Miguel Hernández) undertake some interesting modeling work to arrive at a more efficient market design.

ABSTRACT: We present experimental results from a series of sessions organized using the Power Market simulator; a software designed to realistically replicate the Spanish Electricity Market. In the experiments reported here we compare the status quo to two alternative treatments which represent alternative market structures. In one of them, labeled as vertical separation, we assume that power generating firms and electricity distributors-end suppliers belong to separate business groups. In the second, we study the effect of entry by independent end-suppliers. Both alternative scenarios dominate the status quo in terms of market efficiency, whereas the latter of them dominates the former.

I Love Competition on Black Friday

Posted by D. Daniel Sokol

I love competition.  Perhaps a truism but when firms compete on price and quality, consumers win out.  Because of two children under the age of two years, I often am up at odd hours.  This morning I did the 5 minute drive to our closest Wal-Mart and came back with some excellent deals on electronics.  You cannot beat Wal-Mart's prices, especially on their holiday loss-leaders.  I arrived at the store at 4:55am.  The loss leaders were  available as of 5am.  The parking lot was totally full.  To think that my big holiday purchases were done by 5:03am is a great feeling.  Like many other consumers, I was a winner this morning.

European Commission Conference on Market Definitions and "Like Products"

Posted by D. Daniel Sokol

Trainees and officials from four Directorates-General of the European Commission – Competition, Internal Market and Services, Taxation and Custom Union, and Trade – are jointly organizing a workshop to take place on 14 December 2007 at the European Commission (Berlaymont building, 7th floor) from 9h30 to 12h30. The theme of the workshop is market definitions and "like products" in competition law, internal market law, tax law and trade law.

The workshop will be chaired by Mr. Stefan AMARASINHA (DG Trade and World Trade Institute) and will be structured as follows:

(1) an introductory lectio magistralis delivered by Professor Jacques BOURGEOIS (College of Europe and WilmerHale LLP)

(2) separate group work on an assigned case; a specialist from each DG will chair and provide guidance to each of the four groups: - Mr. Stefan AMARASINHA, DG Trade - Mr. Jan FOLTMAR, DG Taxation and Customs Union - Dr. Oliver KOCH, DG Competition - Mr. Peter SMITH, DG Internal Market and Services

(3) Final panel discussions where the Commission officials will play the role of rapporteurs of the four groups Berlaymont building, 7th floor. European Commission. 200, rue de la Loi/Wetstraat. Brussels métro: Schuman. Free of charges. Please register at: [email protected].

Patching Together what Works in the Fight Against Hard-Core Cartels: Carrots, Sticks, Custody and Leniency

Posted by D. Daniel Sokol

What is not to like about a paper with a long and ambitious title of Variable Geometry Europe - Patching Together what Works in the Fight Against Hard-Core Cartels: Carrots, Sticks, Custody and Leniency by Patrick Dunphy of the European Corporate Governance Institute (ECGI), University of Bonn - Institute for Trade and Commercial Law.

ABSTRACT: The issue of fighting cartel-behaviour in the European Community has been continually addressed both by the European Commission and National Competition Authorities. Concerted practices in corporate governance pursuant to Article 81 EC, continue to be a major problem to the promotion of a competitive Common Market.

This paper aims to analyse these efforts in terms of their effectiveness, and efficiency. By way of viewing select EU Member States anti-cartel provisions, and comparing these to their intra-EC as well as to their U.S. pendants, differences as to the efficiency and the effectiveness of the analysed policies should become evident to the reader. Explicitly, the relevant U.K., U.S., German and French provisions are reviewed.

At the Conclusion of this debate, it will be argued that an effective anti-cartel regime must consist of a severe sanctioning regime complimented by a clear and concise leniency policy integrating the notion of Amnesty Plus, thus providing corporate decision makers with a clear and concise structure in corporate governance. The reader should thus acquire a good understanding of the analysed regimes, while noticing the variable geometry, which is current European Competition Law.

Competition Laws in Latin America and Caribbean: History, Enforcement and Amendments

Posted by D. Daniel Sokol

Juan David Gutierrez of Pontificia Universidad Javeriana in Colombia provides an excellent resource with his paper Competition Laws in Latin America and Caribbean: History, Enforcement and Amendments.

ABSTRACT: The objective of the document, written in Spanish, is to present the current competition laws in Latin America and Caribbean. Recent reforms and bills that are discussed by several Congresses of the region are also referenced. The legal background of competition laws in Latin America and Caribbean is divided in three periods of time, taking into account their issuance and effective enforcement. Due to a detailed reference to the web pages of the competition authorities, this document constitutes a guide for a first hand approach to competition law in seventeen countries of Latin America and Caribbean; likewise, the references to the legislative's web pages permit the monitoring of the amendments or the new bills that are discussed in the each national congress.

Price Squeeze Issue Pontetially Before the Supreme Court

Posted by D. Daniel Sokol

A brief for cert in Pacific Bell Telephone Co. v. linkLine Communications by a number of law professors and professors of economics (William J. Baumol, Robert H. Bork, Robert W. Crandall, George Daly, Harold Demsetz, Jeffrey A. Eisenach, Kenneth G. Elzinga, Gerald Faulhaber, Franklin M. Fisher, Charles J. Goetz, Robert Hahn, Jerry A. Hausman, Thomas M. Jorde, Robert E. Litan, Paul W. MacAvoy, J. Gregory Sidak, Pablo T. Spiller, and Daniel F. Spulber) is worth a read.

Evaluating Market Power Using Competitive Benchmark Prices Rather than the Hirschman-Herfindahl Index

Posted by D. Daniel Sokol

One of the most interesting papers of the year has to be Evaluating Market Power Using Competitive Benchmark Prices Rather than the Hirschman-Herfindahl Index by Jerry Hausman of MIT's Department of Economics and Greg Sidak of Georgetown Law Center.

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.

Measuring the Rate of Return for Competition Law

Posted by D. Daniel Sokol

Paul A. Grout (Department of Economics,  University of Bristol) and Anna Zalewska (School of Management, University of Bath) offer an interesting article in Measuring the Rate of Return for Competition Law.

ABSTRACT: This paper focuses on the application and interpretation of measures of rate of return for competition law. Amongst other results, we analyse how outsourcing and similar arrangements impact the rate of profitability and show that the measurement is more volatile the greater the rate of profit (suggesting that the measures are most problematic when they are most needed). We identify and interpret the outsourcing arrangements that provide the lowest rate of profit and show that these arrangements have a close relationship to net present value. Finally, we provide suggestions to make profitability measures more informative for competition law.

Comments on the Merger Control Provisions of the Amendment's to India's Competition Act

Posted by D. Daniel Sokol

The ABA International and Antitrust sections have submitted comments on the merger control provisions of the September 2007 amendments to India's Competition Act of 2002.
Download abaindia_comments__5bindian5d_competition_amendment_act_2007issued.pdf

Governance and Vertical Integration in Team Sports

Posted by D. Daniel Sokol

Do vertical restraints matter in the sporting world? Stefan Szymanski (Imperial College, University of London Business School) and Steve Ross (Penn State Dickenson School of Law) think that this is an unexplored area and write about it in their article Governance and Vertical Integration in Team Sports.

ABSTRACT: Antitrust law distinguishes vertical and horizontal restraints. A horizontal restraint is one which exists between competing firms supplying rival products in a market, and a vertical restraint is one which exists between firms that jointly contribute to supplying a particular product in a market. Horizontal agreements receive much closer antitrust scrutiny because they often enable firms to limit competition at the expense of consumers, while vertical restraints may be legal or illegal depending on whether they tend to enhance or reduce competition or the exploitation of market power. This paper argues that there are important vertical restraints that operate in sports leagues which have been mostly neglected in the literature but have a significant impact. We focus on intraleague restraints, where member clubs of a league agree to control the organization of league competition, and interleague restraints, where horizontal agreement such as the Reserve Clause relies on agreements not to compete for players competing in senior or junior leagues.

Symposium on the Future of Private Antitrust Enforcement

Posted by D. Daniel Sokol

AAI presents a symposium on the Future of Private Antitrust Enforcement.

Date: December 10, 2007
National Press Club, Holeman Lounge
Address: 529 14th St. NW, 13th Floor Washington, DC 20045

AGENDA
9:00 a.m.
Welcome and Introduction
Bert Foer, President, American Antitrust Institute

9:10 a.m.
The Benefits of Private Enforcement Moderator: Bert Foer, President, American Antitrust Institute
Panelists:
• Robert Lande, Venable Professor of Law, University of Baltimore; AAI Director
• Joshua P. Davis, Professor and Director, Center for Law and Ethics, University of San Francisco School of Law
• Joseph Bauer, Professor of Law, University of Notre Dame Law School
• John E. Schmidtlein, Partner, Williams & Connolly LLP

10:30 a.m.
Break: 15 minutes

10:45 a.m.
The Future of Direct and Indirect Purchaser Actions Debate: Is the AMC's Proposal for Altering Antitrust Direct and Indirect Purchaser Standing Rules Radically Necessary or Radically Destructive?
Moderator: Robert A. Skitol, Partner, Drinker Biddle & Reath LLP; AAI Director
Panelists:
• Jonathan Jacobson, Partner, Wilson Sonsini Goodrich & Rosati
• Eric L. Cramer, Berger & Montague, P.C.

11:45 a.m.
Break: 10 minutes

11:55 a.m.
The Future of Treble Damages, Joint & Several Liability, Contribution, Claims Reduction, and Prejudgment Interest
Moderator: Daniel A. Small, Partner, Cohen Milstein Hausfeld & Toll PLLC
Panelists:
• Joshua P. Davis, Professor and Director, Center for Law and Ethics, University of San Francisco School of Law
• Joseph R. Saveri, Partner, Lieff Cabraser Heimann & Bernstein, LLP
• George G Gordon, Partner, Dechert LLP

1:00 p.m.
Luncheon Speaker: Maxwell M. Blecher, Partner, Blecher & Collins

2:10 p.m. Elevated Standards of Proof and Pleading: Implications of Twombley and Daubert
Moderator: Stephen Ross, Professor, Penn State University Dickinson School of Law
Panelists:
• Beth Farmer, Professor, Penn State Dickinson School of Law
• James Langenfeld, Director, LECG
• Linda P. Nussbaum, Partner, Kaplan Fox & Kilsheimer LLP
• John E. Schmidtlein, Partner, Williams & Connolly LLP

3:45 p.m.
Break: 15 minutes

4:00 p.m.
Facilitated Discussion: Where Do We Go From Here? Moderator: Bert Foer, President, American Antitrust Institute

5:00 p.m. Adjourn