Antitrust & Competition Policy Blog

Regulated Conduct and the Competition Act

Posted by D. Daniel Sokol

Michael Trebilcock of the University of Toronto Faculty of Law has posted Regulated Conduct and the Competition Act.

ABSTRACT: A number of important issues remain unresolved in Canada in defining the scope of the exemption of regulated conduct from the purview of the Competition Act. The Competition Bureau's Information Bulletin on the Regulated Conduct Defence has done little to resolve these issues and the Bureau has recently announced public consultations on this subject. A number of issues are often unhelpfully elided in debates over the scope of the so-called regulated conduct defence. This paper attempts to disaggregate these issues.

A Dynamic Oligopoly Structural Model for the Prescription Drug Market after Patent Expiration

Posted by D. Daniel Sokol

Andrew Ching of the University of Toronto - Joseph L. Rotman School of Management discusses A Dynamic Oligopoly Structural Model for the Prescription Drug Market after Patent Expiration in his latest working paper.

ABSTRACT: Motivated by the slow diffusion of generic drugs and the increase in prices of brand-name drugs after generic entry, I incorporate consumer learning and consumer heterogeneity into an empirical dynamic oligopoly model. In the model, firms choose prices to maximize their expected total discounted profits. Moreover, generic firms make their entry decisions before patent expiration. The entry time of generics depends on the FDA random approval process. I apply this model to the market of clonidine. The demand side parameters are estimated in a previous paper (Ching, 2008). The supply side parameters are estimated and calibrated here. The model replicates the stylized facts fairly well. I confirm that consumer heterogeneity in price sensitivity plays an important role in explaining the brand-name pricing pattern. I also apply the model to examine the impact of a policy experiment, which shortens the expected approval time for generics. Although this experiment brings generics to the market sooner, it also reduces the number of generic entrants as the likelihood of entering a crowded market in the early periods increases. Given the change in magnitude of the policy parameter, the experiment improves the rate of learning, and lowers the equilibrium generic prices throughout the period. However, it hardly raises the overall welfare.

Competition Policy and the Incentive to Innovate: The Dynamic Effects of Microsoft V. Commission

Posted by D. Daniel Sokol

Dan Spulber of Northwestern University Kellog School of Business has posted Competition Policy and the Incentive to Innovate: The Dynamic Effects of Microsoft v. Commission.

ABSTRACT: Microsoft v. Commission indicates a shift in competition policy at the expense of protections for intellectual property. The case applies essential facilities arguments to Microsoft's server operating system and tying arguments to its Windows Media Player. The dynamic effects of Microsoft v. Commission pose a substantial risk to the incentive to innovate in several ways. First, mandatory licensing and unbundling of the elements of an invention erode intellectual property rights. Second, the targeting of multinational corporations by the European Union creates barriers to international trade whose impacts extend across the global economy. Third, the interpretation of abuse of a dominant position focuses on market outcomes rather than on anticompetitive conduct, thus penalizing successful innovators and rewarding their competitors. Competition policy based on Microsoft v. Commission diminishes the incentive to innovate.

Guidance to Business on Monopolisation and Abuse of Dominance

Posted by D. Daniel Sokol

The OECD has posts its roundtable Guidance to Business on Monopolisation and Abuse of Dominance.

ABSTRACT: This roundtable focused on how competition authorities can provide businesses with effective guidance on monopolization and abuse of dominance. While some uncertainty over the reach of rules prohibiting anticompetitive unilateral conduct is inevitable, authorities responsible for the enforcement of antitrust laws must strive to provide as much transparency as possible as to their enforcement policies so that businesses can plan and invest with some predictability.

More Thoughts on Lawyer Rankings

Posted by D. Daniel Sokol

Following up on my post last week on lawyer rankings in antitrust, one issue that I often debate with practitioner friends is the ease of which it is to have an antitrust practice outside of the five largest legal markets in the United States (DC, NY, San Francisco, Los Angeles and Chicago).  It is very difficult to develop a critical mass of local practitioners in other legal markets in highly specialized areas like antitrust, even when the other legal markets are still quite sizable.  This is not to suggest that there are not excellent antitrust practitioners at law firms outside of the largest legal markets.  Some people that come to mind immediately in a not exhaustive list that have national or international practices include Bruce Hoffman of Hunton & Williams in Miami, FL (and a University of Florida law grad!), Kevin O'Connor of Godfrey & Kahn in Madison, WI, Sean Royall in the Dallas, TX office of Gibson Dunn and Steve Harris of Jones Day's Atlanta office (Steve probably has the best US based Asian antitrust practice).

What does it take to have critical mass?  Let us examine the Chamber USA rankings to see the states that Chambers ranks for antitrust practices.  These states (and largest legal markets) are:

• California (Los Angeles, San Diego, San Francisco)
• District of Columbia (Washington)
• Florida (Miami)
• Georgia (Atlanta)
• Illinois (Chicago)
• Massachusetts (Boston)
• New York (NY)
• North Carolina (Charlotte, Raleigh-Durham)
• Pennsylvania (Philadelphia)
• Texas (Dallas, Houston)

Interestingly, a number of states with larger cities lack critical mass for antitrust rankings in Chambers (Colorado, Maryland, Michigan, Missouri, Ohio, Washington, Wisconsin).  What gives states critical mass to have an antitrust practice outside of the big 5 US legal markets?  Is it the number of Fortune 500 companies in the state?  Is it the lack of a DC office that siphons the antitrust work?  Is it that practitioners in these other states have a combination of cost advantages and highly specialized antitrust practices?  Is there enough state specific litigation brought by state AGs?

Any thoughts from blog readers?

 

The Political Economy of European Union Competition Policy: A Case Study of the Telecommunications Industry

Posted by D. Daniel Sokol

New from Routledge Press is The Political Economy of European Union Competition Policy: A Case Study of the Telecommunications Industry by Tuna Baskoy (Department of Politics and Public Administration at Ryerson University).

ABSTRACT: In the European Union (EU), competition policy occupies a central place amongst other EU public policies and is the first truly supranational public policy regulating market competition. One of the stated objectives of EU competition policy is to prevent excessive concentration of economic power in the hands of a few. This book investigates the political economy of EU competition policy by taking the European telecommunications industry as a case study. Baskoy argues that the EU competition policy has failed to achieve its objectives of preventing excessive market concentration in the telecommunications industry over the past quarter-century. He takes the controversial view that EU competition policy foremost promotes an industrial policy that fosters the profitability of European firms. Moreover, Baskoy argues that EU competition policy is short of adequate theoretical and conceptual capacities to comprehend the working dynamics of market competition and the market behavior of firms. This exceptional book will be of interest to scholars of Politics, Economics, Business, and International Relations and Policies.

The Potential Impact of Twombly on Antitrust Class Actions

Posted by D. Daniel Sokol

Wendy Bloom (Kirkland & Ellis) & James Langenfeld (LECG and Loyola Chicago Law) discuss The Potential Impact of Twombly on Antitrust Class Actions.

ABSTRACT: Just over a year ago, the U.S. Supreme Court issued its decision in Bell Atlantic Corp. v. Twombly which arguably changed the pleading standards required for all complaints filed in federal court. Twombly has particular relevance to antitrust class actions, however, because the complaint at issue in Twombly was an antitrust class action.

While it is too early to assess the full impact Twombly will have on antitrust class actions, we believe that, as a result of Twombly, economic analysis now matters at the earliest stages of an antitrust class action. It is no longer sufficient for plaintiffs to file complaints with bare bones Sherman Act Section 1 allegations, and await summary judgment to proffer a coherent economic theory after learning the facts through discovery.

Class Interpleader: The Antitrust Modernization Commission's Recommendation to Overrule Illinois Brick

Posted by D. Daniel Sokol

Bill Page of the University of Florida Levin College of Law takes on the AMC in his paper Class Interpleader: The Antitrust Modernization Commission's Recommendation to Overrule Illinois Brick.

ABSTRACT: The Antitrust Modernization Commission has proposed that Congress abandon the thirty-year-old federal policy of Illinois Brick. The proposal would weaken the federal right of action for direct purchasers by reviving the passing-on defense, but would create a new federal right of action for indirect purchasers. Although federal rights of action under the proposed regime would not be exclusive, state law claims would be subject to expanded federal jurisdiction to allow consolidation of all claims in a single court for both discovery and trial. All recoveries in the consolidated actions would be limited to the initial overcharge, trebled. Congress should not adopt these proposals, for two primary reasons. First, a pure direct purchaser regime would provide the most efficient means of imposing a deterrent penalty equal to three times the overcharge. Second, even if compensation is an appropriate goal, indirect purchaser suits is will not achieve it. We are all indirect purchasers of goods that are more expensive because of antitrust violations; most of us have even received notice that we were members of putative or certified classes. But our harms are usually too diffuse, too individualized, and too small for the courts to calculate and distribute efficiently. The legal system should focus its energies on imposing the appropriate deterrent penalty for antitrust violations at the lowest possible direct cost.

False Positives in Identifying Liability for Exclusionary Conduct: Conceptual Error, Business Reality, and Aspen

Posted by D. Daniel Sokol

Peter Carstensen of the University of Wisconsin Law School has posted False Positives in Identifying Liability for Exclusionary Conduct: Conceptual Error, Business Reality, and Aspen.

ABSTRACT: The decisions in Aspen and Trinko point the law of monopolization in different directions. Aspen offered a nuanced standard that focused on balancing the risks to competition from exclusionary conduct against the potential legitimate business needs of a monopolist to engage in such behavior. Trinko, in contrast, celebrates the right of the monopolist to exploit the market by excluding competition in the interest of, apparently, encouraging technological innovation rewarded by monopoly profits. Moreover, the case expresses great concern about false-positive decisions finding violations when in fact none exist. The Trinko Court and supportive commentators assume that such decisions are common and very harmful to economic efficiency.

This Paper argues that Aspen and the cases following it provide the better approach to exclusionary monopolistic conduct. Monopoly is economically undesirable from both static and dynamic perspectives. The concern for false positives rests on incorrect and implausible assumptions while false negatives in fact create a more serious risk to the competitive process. Hence, the law of monopolization should embrace the stricter scrutiny mandated by Aspen, or if there are real risks of inefficient results, monopoly law should return to its historic mission of dissipating the monopoly power itself by dissolution of the monopolist or some other remedy that would in fact eliminate the undesirable and unnecessary
monopoly power.

Broadband Access Policy: The Role of Antitrust

Posted by D. Daniel Sokol

FTC Commissioner Tom Rosch recently spoke about Broadband Access Policy: The Role of Antitrust.  He concludes:

• In conclusion, let me stress that I consider the current debate about net neutrality to be a legitimate debate. But I have concerns that we not over-promise what antitrust enforcement can contribute to that debate. That said, I am also concerned that legislation based on speculation or misinformation may surrender to the law of unintended consequences. For the moment, perhaps the best course is rigorous enforcement of our consumer protection laws requiring upfront disclosure of all material facts.

Canada's Competition Review Panel Report is Out

Posted by D. Daniel Sokol

Competition Policy Review Panel issued its long awaited report to the Minister of Industry. A summary of the report is available at:

http://www.ic.gc.ca/epic/site/cprp-gepmc.nsf/en/home.

The full report is available at

http://www.ic.gc.ca/epic/site/cprp-gepmc.nsf/vwapj/Compete_to_Win.pdf/$FILE/Compete_to_Win.pdf.

Specific policy  recommendations to the federal government include:

• Amending the Investment Canada Act to reduce barriers to foreign investment by increasing review thresholds; reversing the onus to require the government to demonstrate that an investment would be contrary to the national interest before disallowing a transaction; increasing transparency and predictability; and preserving a distinct approach for the cultural sector while also initiating a broad review of Canada’s cultural policies;
• Liberalizing investment restrictions in the Canadian air transport, uranium mining, and telecommunications and broadcasting sectors, and removing the de facto ban on mergers in the financial services sector;
• Updating and modernizing the Competition Act in line with best practices internationally;
• Creating a Canadian Competitiveness Council to give voice to and advocate for competition in Canada, and ensure sustained attention by governments on national competitiveness.

Audio Recordings from AAI’s Annual National Conference

Posted by D. Daniel Sokol

You can listen to audio recordings from AAI’s Annual National Conference here.

The Waterbed Effect: Where Buying and Selling Power Come Together

Posted by D. Daniel Sokol

Paul Dobson (Loughborough University Business School) and Roman Inderst (Economics and Finance, University of Frankfurt and London School of Economics) discuss The Waterbed Effect: Where Buying and Selling Power Come Together.

ABSTRACT: This Paper considers the competition effects of differential buyer power. The central question addressed is whether the increasing buying power of big retail chains can harm competition to the extent that it makes consumers worse off. This possibility runs counter to the often-made presumption that increasing retail-buyer power serves to countervail supplier power, allowing retailers to obtain increased discounts that are then (at least in part) passed on to consumers through lower retail prices. However, with retailers differing in their ability to exercise buyer power, there is the possibility of a “waterbed effect,” whereby better terms for more powerful buyers lead to a worsening of the terms of supply for less powerful buyers, which in turn may lessen downstream (i.e., retail) competition and harm consumer welfare. This Paper offers guidance on the market mechanisms and precise circumstances that may give rise to such a waterbed effect and the extent to which this may distort downstream competition and impact on consumers.

2-to-1 Mergers: Impossible to Clear?

Posted by D. Daniel Sokol

The competition policy team over Oxera offers advice on 2-to-1 Mergers: Impossible to Clear?

ABSTRACT: A number of (seemingly) 2-to-1 mergers, as well as other mergers in concentrated markets, have been allowed by competition authorities in recent years. Given that the aim of these authorities is to promote effective competition—which is generally found in markets with many companies—how were these mergers allowed? This article presents a number of justifications, which have been, or could be, used in such mergers.

Europe and Globalisation of Antitrust

Posted by D. Daniel Sokol

A great conference will be held June 30 to July 1 by the IBA Antitrust and Trade Law Section and the Studienvereinigung Kartellrecht, and supported by the IBA European Regional Forum on Europe and Globalisation of Antitrust.

Competition Enforcement in an Innovative Economy

Posted by D. Daniel Sokol

Tom Barnett of DOJ Antitrust recently gave a speech titled Competition Enforcement in an Innovative Economy.

Competition and Regulation European Summer School and Conference

Posted by D. Daniel Sokol

The Third Annual Competition and Regulation European Summer School and Conference (CRESSE) will take place from the 28th of June to the 10th of July (Conference: 4-5 July), in the seaside resort area of Anavyssos, south of Athens.  See here for details.

Merger Stability in a Cost Asymmetric Industry

Posted by D. Daniel Sokol

Margarida Catalao Lopes Technical University of Lisbon of the Technical University of Lisbon has posted Merger Stability in a Cost Asymmetric Industry.

ABSTRACT: This paper analyzes the formation and stability of mergers involving asymmetric firms, as a function of efficiency differences and fixed cost savings. Mergers are allowed to include any number of participants, out of an n-firm industry. Attention is restricted to individual movements and the focus is on the identity of insiders, with predictions on which mergers are more likely to survive perturbations or estimation errors by proponents and/or by the regulatory authority across the parameter space.

Regulation, Allocative Efficiency and Productivity in OECD Countries: Industry and Firm-level Evidence

Posted by D. Daniel Sokol

A newly posted OECD document, Regulation, Allocative Efficiency and Productivity in OECD Countries: Industry and Firm-level Evidence provides some interesting new evidence.

ABSTRACT: We first show, by means of an original set of OECD indicators of the “knock-on” effects of non-manufacturing regulation, that the burden of inappropriate regulations has been disproportionately high in ICT-using sectors of many continental EU countries. Then, relying on existing industry-level econometric results, we show that these regulatory burdens have led to slower productivity growth in the ICT-using industries of these countries. Finally, using harmonised industry-level and firm-level data we provide new evidence on the relationship between regulation and the efficiency of resource allocation across sectors and firms in countries for which these data are available. This leads to several conclusions:
• First, there is a significant heterogeneity of productivity performance across sectors in OECD countries and, within each of them, across firms. This heterogeneity, in turn, highlights the importance of an efficient allocation of resources to promote aggregate productivity growth.
• Second, across industries (and especially within the ICT-using set) resources are allocated less efficiently where anti-competitive regulations are severe.
• Third, anti-competitive regulations tend to be associated with a weaker ability of sectors and countries to allocate resources to the most dynamic and productive firms.
• Finally, the negative effects of anti-competitive product market regulations on firm productivity are concentrated in ICT-using sectors, with a particularly pronounced effect on firms that are in the process of catching up to the technology frontier and that are not far from international best practice. In other words, regulations hurt in particular those firms that have the potential to excel in domestic and  international markets.

The rest of the paper is organised as follows. In Section 2, we review the theoretical linkages between anti-competitive product market regulations, investment, resource reallocation, innovation and ultimately productivity growth. Relying on OECD indicators, we also briefly discuss how differences across countries in these regulations have evolved over time and hit differently ICT-using sectors. We then move in Section 3 to the evidence on the regulation-productivity linkage at the aggregate, sectoral and firm levels. After a brief reminder of cross-country growth patterns, we show how differences in regulation have interacted with the ICT supply shock to shape divergence in growth performances over the past two decades, focusing on ICT investment and the performance of ICT-using sectors. We then examine more in detail how differential growth performances have been affected by the ability of OECD economies to reallocate resources to fast growing sectors and firms. In this context, we present new econometric evidence on how product market regulations affect productivity performance of different firms in a sample of EU countries. Section 4 provides some concluding remarks.

Dynamics and Regulation of the Asian Pharmaceutical Industry: A Critical Review

Posted by D. Daniel Sokol

F.M. Scherer of Harvard's Kennedy School of Government discusses Dynamics and Regulation of the Asian Pharmaceutical Industry: A Critical Review in his latest working paper.

ABSTRACT: This paper provides an overview on 18 papers presented at a Stanford University conference on the Asian pharmaceutical industries. It begins by putting the contributions and growth of individual national industries in quantitative perspective. Several substantive issues are then addressed: (1) the distortions introduced by the system prevalent in many Asian nations for physicians to secure much of their compensation through the profits from drugs they directly dispense: (2) the effects of government price controls, which among other things encourage emphasis on proliferating minor improvements to existing drugs; (3) the fragmentation of manufacturing industry structure, which leaves too many firms lacking the economies of scale required inter alia to sustain high levels of quality control and which makes regulatory monitoring difficult; (4) the implications of World Trade Organization rules requiring nations to begin issuing pharmaceutical product patents where previously their industries could free-ride on the technological advances of industrialized nations; and (5) whether more Asian pharmaceutical firms can overcome the hurdles to becoming significant