Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Thursday, July 31, 2008

Unilateral Refusals to Deal, Vertical Integration, and the Essential Facility Doctrine

Posted by D. Daniel Sokol

Herberthovenkampphp Herb Hovenkamp of the University of Iowa Law School (who just this week the DOJ honored with its John Sherman award) has written on Unilateral Refusals to Deal, Vertical Integration, and the Essential Facility Doctrine.

ABSTRACT: Where it applies, the essential facility doctrine requires a monopolist to share its "essential facility." Since the only qualifying exclusionary practice is the refusal to share the facility itself, the doctrine comes about as close as antitrust ever does to condemning "no fault" monopolization. There is no independent justification for an essential facility doctrine separate and apart from general Section 2 doctrine governing the vertically integrated monopolist's refusal to deal. In its Trinko decision the Supreme Court placed that doctrine about where it should be. The Court did not categorically reject all unilateral refusal to deal claims, but it placed very strict limits on the doctrine's use, which this paper explores.

July 31, 2008 | Permalink | Comments (0) | TrackBack (0)

Fordham 2008 Annual Conference on International Antitrust Law & Policy

Posted by D. Daniel Sokol

The speaker's list for the  Fordham Annual Conference on International Antitrust Law & Policy (this year September 25-26) is now available.

Thursday, September 25

Welcome
Dean William Treanor, Fordham University School of Law

Settlements under EU Competition Law
Neelie Kroes, EU Commissioner for Competition, Brussels

Discussion
Jean-Francois Bellis (Presider), Van Bael & Bellis, Brussels
Almudena Arpón de Mendívil y Aldama,  Gomez-Acebo & Pombo, Abogados, S.L., Madrid
Alberto PeraGianni, Prigoni, Grippo & Partners, Rome

Coffee Break

Merger Control in the EU: Evidentiary Issues and Burden of Proof
Nicholas Levy Cleary Gottlieb Steen & Hamilton LLP, Brussels

Mergers and the Courts in the U.S.
Steven C. Sunshine, Skadden, Arps, Slate, Meagher & Flom LLP, Washington

Discussion
Nigel Parr (Presider), Ashurst LLP, London
Diane Wood,  U.S. Court of Appeals for the Seventh Circuit, Chicago

Lunch

International Antitrust: Recent Developments and Trends
Thomas O. Barnett, Assistant Attorney General, U.S. Department of Justice, Washington
Philip Lowe, Director General, European Commission, Brussels

Discussion
A. Paul Victor (Presider),  Dewey Ballantine LLP, New York
Pieter Kalbfleisch,  Chairman of the Board, Netherlands Competition Authority, Netherlands
Eduardo Perez Motta,  President, Mexico´s Federal Competition Commission, Mexico City
Sheridan Scott, Commissioner, Competition Bureau Canada, Gatineau
Kazuhiko Takeshima,  Chairman, Japan Fair Trade Commission, Toyko
Mona Yassine, President, Egyptian Competition Authority, Cairo

Reception


Friday, September 26

Chilling Effects of Antitrust Law
Paul Lugard (Presider),  Philips, Eindhoven
Mary E. Bartkus,  Merck & Co., Whitehouse Station
Hendrik Bourgeois,  General Electric, Brussels
John Fingleton,  Chief Executive Officer, Office of Fair Trading, London
David Lewis,  South African Competition Tribunal, Sunnyside
Daniel L. Rubinfeld,  Robert L. Bridges Professor of Law and Professor of Economics, University of California, Berkeley

Luncheon

Exploitative Abuses
Frederic Jenny (Presider),  Judge, Commercial, Economic & Financial Law Chamber, Paris
Paul S. Crampton,  Osler, Hoskin & Harcourt LLP, Toronto
William  Kovacic,  Chairman, Federal Trade Commission, Washington
David Lewis,  South African Competition Tribunal, Sunnyside
Lucas Peeperkorn,  DG Competition, European Commission, Brussels
Alexander Riesenkampff,  Schulte Riesenkampff, Frankfurt
Gregory J. Werden, Senior Economic Counsel, U.S. Department of Justice, Washington

Closing

July 31, 2008 | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 30, 2008

An Empirical Analysis of Mexican Merger Policy

Posted by D. Daniel Sokol

Marcos Avalos (University of Anahuac - Department of Economics) and Rafael E. De Hoyos (World Bank) have created, to my knowledge, the first Empirical Analysis of Mexican Merger Policy.

ABSTRACT: A newly created dataset including 239 decisions made by the Mexican Federal Competition Commission on horizontal mergers between 1997 and 2001 is used to estimate the different factors affecting the Commission's resolution. The paper approximates the decision making process using two different discrete choice models. The results indicate that, contrary to the Commission's objective, the presence of efficiency gains increases the probability of a case being issued. The findings also show that factors different from the ones explicitly mentioned by the Commission have a significant effect on the Commission's final decision. In particular, the presence of a foreign company among the would-be merger firms significantly increases the likelihood of observing an allowed merger.

July 30, 2008 | Permalink | Comments (0) | TrackBack (0)

Multiple Listing Arrangements in Residential Real Estate Transactions: An Antitrust Analysis

Posted by D. Daniel Sokol

Epstein

Richard Epstein of the University of Chicago Law School provides his thoughts on Multiple Listing Arrangements in Residential Real Estate Transactions: An Antitrust Analysis.

ABSTRACT: Let me start this short paper on the antitrust law governing multiple listings in the real estate brokerage industry with a conventional account. Thereafter I shall try to explain why this account, while not wholly wrong, is in at least one important respect incomplete.

This two-part journey addresses some of subtleties that are involved in cases of horizontal price-fixing in information markets, where intermediaries play a critical role in bringing together diffuse buyers and sellers on the opposite side of the same market.

The antitrust case law on this issue is something of a jumble. Early cases on information exchange recognized that the sharing of information could both aid and restrict competition simultaneously. They are not all that clear in specifying exactly which forms of information-sharing among firms had which predominant effect.

The reason for this persistent duality is not hard to fathom. Reliable information that is shared among competitors can facilitate the fixing of prices and the division of markets, both of which count as per se offenses under Section 1 of the Sherman Act. Yet by the same token, the sharing of information could allow for more efficient transactions among firms located at the same level inside the marketplace. The question is how to draw the appropriate lines between these two scenarios.

As in all antitrust areas, there is no free lunch, for errors in both directions are costly. Failing to identify and correct cartelization schemes can lead to the usual deadly trio of antitrust law sins: increased prices; reduced quantities; and deadweight social losses, where the last element (a consequence of the first two) is the ultimate measure.

But the converse proposition is also true. The imposition of excessive antitrust liability can result in diminished forms of efficiency by burdening firms that seek to introduce efficient forms of communication and coordination. To give but one simple example, it is surely wrong to allow competitors to fix prices for similar products. But it is important to allow them to combine to set industry standards for their various products, whether they are for insurance policies or Internet protocols. Standardization reduces search costs by making it easier to compare products, such that information about price offers a stronger signal about the relative desirability of the two alternatives.

There are strong arguments why a rule of per se legality should apply to these organizational efforts.

July 30, 2008 | Permalink | Comments (0) | TrackBack (0)

Innovation Markets after Genzyme/Novazyme

Posted by D. Daniel Sokol

Richard Gilbert (University of California at Berkeley - Economics) offers his thoughts on Innovation Markets after Genzyme/Novazyme.

ABSTRACT: The U.S. Federal Trade Commission alleged adverse effects on innovation in about forty percent of all merger challenges between 1996 and mid-2008. The percentage was much higher for challenges in industries with unusually high research and development intensity, such as pharmaceuticals (excluding generics), chemicals, software, instruments, high-tech manufacturing, defense, and aerospace.

The FTC challenged sixty-three proposed mergers or acquisitions in these industries and alleged adverse innovation effects in fifty-seven cases, or about ninety percent of the challenged transactions. The percentage of merger challenges in R&D-intensive industries that alleged adverse effects on innovation has been high throughout the past decade.

[ . . . ]

Is it likely that an antitrust enforcement agency will challenge a merger or other business arrangement solely because the arrangement creates adverse incentives for innovation? Some would argue that insurmountable obstacles prevent antitrust enforcers from pursuing a pure innovation case, including the following:

1. With the exception of contract R&D, there is no market in which R&D is bought and sold.

2. R&D is an input to innovation and bears an uncertain relationship to innovative output.

3. There is no solid body of economic theory and empirical research on which to base predictions of the effects of changes in market structure or business conduct on innovation.

I discuss these potential obstacles in light of the Genzyme/Novazyme decision and recent economic developments pertaining to competition and innovation.

July 30, 2008 | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 29, 2008

New York Times Story on Obama as Law Professor (with a quote from one of your favorite antitrust bloggers)

Posted by D. Daniel Sokol

Tomorrow's front page story in the New York Times in now online on Obama as Law Professor.  I am quoted on Obama's teaching at the University of Chicago.  I took a small seminar with him on race and the law in my 3L year of law school.  Obama was a spectacular professor who brought in insights from economics and sociology to the class (this was not a doctrine heavy class).  One thing that impressed me was how he challenged a number of very liberal students about their beliefs, which at first was a bit unexpected for them.  He was nuanced and fair in his teaching.  In so many ways he was a gifted classroom teacher and I aspire to be the teacher that he was. 

Obama was really great outside of the classroom as well.  When I let him know that I wanted to make the move to academia (he had volunteered to write me a letter based on my paper back in early 2001), in addition to the usual suspects of full time law faculty who wrote letters of recommendation on my behalf, Senator Obama was gracious enough to write one as well-- years after I had him in class.  What amazes me is that even as a US Senator, he took the time out of his busy schedule to undertake this task.  Whether or not he took follow up calls from law school faculty hiring committees, I don't know.

July 29, 2008 | Permalink | Comments (2) | TrackBack (0)

Conceptual Problems with the Hypothetical Monopolist Test in Ex-Ante Regulation of Communications Under the New Regulatory Framework

Posted by D. Daniel Sokol

Wolfgang Briglauer (Austrian Regulatory Authority for Broadcasting and Telecommunications (RTR), Economics Division) has written on Conceptual Problems with the Hypothetical Monopolist Test in Ex-Ante Regulation of Communications Under the New Regulatory Framework.

ABSTRACT: Under the new European regulatory communications framework that was enacted in 2002, market definitions are subject to a different and much more analytical scope. With regards to market definition, the new regulatory ex-ante framework explicitly adopts the so-called "Hypothetical Monopolist Test" (HMT), which has long been the state of the art in ex-post competition law. Direct empirical implementation based on rigorous statistical grounds is found to be exceedingly difficult. The very fact that the HMT is endorsed in ex-ante as well as ex-post jurisdictions, but rarely implemented directly in practice, underlines this point. Therefore, a proper understanding of the conceptual framework is of particular importance because this makes clear what the individual factors determining the outcome of the HMT are. Such understanding will serve as a valuable guidance in the decision-making process in line with the conceptual framework. This article discusses those aspects and gives applications from sector-specific communications markets. Doing this also illustrates that the HMT is, in principle, designed to be applied alongside all relevant market definition dimensions. Any methodological deviations from the HMT have therefore to be justified analytically.

July 29, 2008 | Permalink | Comments (0) | TrackBack (0)

DC Circuit Reverses on Whole Foods

Posted by D. Daniel Sokol

I am revising an article and have not had time to read the decision but here it is.

Update: Randy Picker has comments on the decision here.

July 29, 2008 | Permalink | Comments (1) | TrackBack (0)

Financial Times on the "Antirtrust Explosion"

Posted by D. Daniel Sokol

An editorial in today's Financial Times laments the antitrust explosion in terms of the potential cost to business, particularly with multiple jurisdictional review of mergers.

July 29, 2008 | Permalink | Comments (0) | TrackBack (0)

European Competition Law Annual 2007

Posted by D. Daniel Sokol

Claus-Dieter Ehlermann (European University Institute) and Mel Marquis (University of Macerata) have edited European Competition Law Annual 2007.

ABSTRACT: This is the twelfth in a series on EU Competition Law and Policy produced by the Robert Schuman Centre of the European University Institute in Florence. The volume reproduces the written contributions and transcripts in connection with a roundtable debate which examined the EU's enforcement policy as regards the abuse of a dominant position under Article 82 EC. The workshop participants included: senior enforcement officials and policy makers from the European Commission, from the national competition authorities of certain EU Member States and from the US Department of Justice and Federal Trade Commission; as well as renowned international academics, legal practitioners and professional economists. In an intense, intimate environment this group of experts debated a number of legal and economic issues structured according to three broad lines of discussion: 1) comparisons of the concept of monopolisation under Section 2 of the Sherman Act with that of abuse of dominance under Article 82 EC; 2) a reformed approach to exclusionary unilateral conduct; and 3) exploitative unilateral conduct and related remedies.

July 29, 2008 | Permalink | Comments (1) | TrackBack (0)

Monday, July 28, 2008

Competition and Innovation Policy

Posted by D. Daniel Sokol

Philip Lowe of DG Competition discusses Competition and Innovation Policy.

ABSTRACT: Innovation and competition go hand in hand. Innovative markets are competitive markets and innovative companies succeed in them. In the European Commission, as in competition authorities across the world, our focus is on ensuring that this happens in the most efficient and fair manner.

In this article, I will aim to dispel a few myths about the relationship between competition and innovation policy, drawing my evidence from both well-established economic theory and DG Competition's day-to-day case practice. In doing so, I will open with a caveat: Competition policy cannot work miracles.

The true cornerstones of an innovation society are its education, its research and development policies, and its infrastructure. Businesses compete to provide consumers with goods and services, with the best choice and quality at the lowest costs. Innovation therefore depends on business initiative and enterprise. Good competition policies can complement these requirements. Such policies provide a solid framework for business to compete, but they cannot force businesses to compete.

July 28, 2008 | Permalink | Comments (0) | TrackBack (0)

Damages Actions: the European Commission White Paper

Posted by D. Daniel Sokol

Oxera has a useful short piece on different ways to think about damage calculations in its publication Damages Actions: the European Commission White Paper.

July 28, 2008 | Permalink | Comments (0) | TrackBack (0)

European Regulators in the Network Sectors: Revolution or Evolution?

Posted by D. Daniel Sokol

Saskia Lavrijssen and Leigh Hancher, both of Tilburg University - Law have authored European Regulators in the Network Sectors: Revolution or Evolution?

ABSTRACT: The coming into force of the electronic communications directives, the energy directives and Regulation 1/2003 has given the European Commission a new set of instruments to safeguard the uniform application of European law by the 27 independent national regulatory authorities founded by the member states in implementation of European legislation. On the one hand, the Commission has itself acquired wide-ranging powers to monitor and regulate the national authorities both directly and ex ante. It has the power to formulate ex ante rules, including binding comitology guidelines and European policy rules which, on the grounds of Article 10 EC and specific co-operation obligations laid down in European legislation, national authorities must take into account when exercising their powers. The Commission also has the power, in the interests of uniform application of European law, to intervene ex ante in national procedures by making comments, vetoing decisions and/or removing a national authority from a case. On the other hand, the Commission has increasingly used 'hybrid' forms of regulation through the founding of independent European networks of national regulators. Within these networks, the national regulatory authorities in the various member states must co-operate with each other and with the Commission to guarantee uniform application of European law. These networks include the European Energy Regulators Group (ERGEG), the European Regulators Group for Communications Networks and Services (ERG) and the European Competition Network (ECN). A network of financial regulatory authorities had already been set up earlier in the financial sector, in the form of the Committee of European Securities Regulators (CESR).

The European networks of national regulators are hybrid in nature. Their lack of legal personality means they do not have the status of 'EU independent agencies' which, established on the basis of European regulations, do have legal personality and are able to carry out their daily tasks at one remove from the European institutions. Neither are the European networks national agencies. The independent European networks of national regulators are increasingly manifesting themselves as autonomous entities. Through hybrid forms of regulation (such as Common Positions or European policy rules) created as a consequence of the interaction between informal European and national actions, they are able to influence the decisions of both the Commission and the national authorities.

As part of the reform of European legislation in the network sectors, the Commission is currently looking at the possibilities for uniform application of European law in the member states and looking at ways of improving the co-ordination between the different national regulatory authorities (see section 6). The Commission wishes to increase its own ex ante powers and is examining whether the role of the European networks of national regulators could be further strengthened by the creation of 'European networks plus'. It recently published a proposal for a Regulation founding a European Agency for the Co-operation between Energy Regulators. As this paper will show, owing to the hybrid nature of the European networks and their actions, there are a number of 'accountability gaps' both in the present situation and in the proposals for the 'European networks plus'.

This article analyses the problems which arise with regard to the political and legal accountability of the independent national regulatory authorities which work together with each other and with the Commission in the European networks of national regulators or the 'European networks plus'. It devotes attention to the political monitoring by and accountability to the European Parliament and/or the national parliaments at the European and national level, respectively, and to the potential role of judicial oversight by the European Court of Justice and the national courts. A distinction is consistently drawn between the present situation of more informal co-operation between the national regulatory authorities in the European networks and the strengthened co-operation within the 'European networks plus'. This article also makes a number of proposals for improving the accountability of the 'European networks plus'.

July 28, 2008 | Permalink | Comments (0) | TrackBack (0)

Sunday, July 27, 2008

Antitrust Panels at the IBA Annual Conference

Posted by D. Daniel Sokol

There are a number of interesting antitrust panels this year at the IBA Annual Conference in Buenos Aires, Argentina- October 12-17.

July 27, 2008 | Permalink | Comments (0) | TrackBack (0)

Saturday, July 26, 2008

Efficiency and Justice in European Antitrust Enforcement

Posted by D. Daniel Sokol

Wouter PJ Wils of DG Competition has authored the book Efficiency and Justice in European Antitrust Enforcement.

ABSTRACT: In the last few years, the public enforcement of Articles 81 and 82 EC has been thoroughly transformed: the competition authorities of the EU Member States have become active enforcers within the European Competition Network, the European Commission has imposed more and higher fines than ever before, leniency has become a major instrument of cartel detection, and some Member States have introduced criminal penalties. The overall trend towards more and stronger enforcement of Articles 81 and 82 EC has also rekindled discussion on the old question of how to strike the right balance between efficient enforcement and adequate protection of the rights of the defence. This book brings together six essays which analyse from both a legal and an economic perspective the powers of investigation of the European Commission and the competition authorities of the Member States, and the corresponding procedural rights and guarantees, the use of settlements, the theory and practice of fines and of leniency, and the criminalization of European antitrust enforcement.

July 26, 2008 | Permalink | Comments (0) | TrackBack (0)

Friday, July 25, 2008

Commission launches public consultation on keystone antitrust regulation

Posted by D. Daniel Sokol

In an important move, the European Commission has launched a public consultation on a keystone of its antitrust regulation.

According to the press release:

  • The European Commission has launched a public consultation on the functioning of the Council Regulation (1/2003) that sets out the rules for the Commission's enforcement of EC Treaty antitrust rules. This Regulation, which took effect on 1 May 2004, also entrusts national competition authorities and courts with the role of applying the EU antitrust rules, meaning that there is wide-spread enforcement of the same set of rules to prosecute cartels and other anti-competitive practices throughout Europe. The Commission is looking for views on all aspects of its implementation in practice. Regulation 1/2003 was the result of the most comprehensive reform of antitrust procedures since 1962. Its key objectives are more effective enforcement of EC antitrust rules in the interests of consumers and businesses, while bringing about a more level playing field and reducing red tape for companies operating in Europe. The Commission will use the results of the consultation to prepare the report on the functioning of Regulation 1/2003, which should be presented to the European Parliament and the Council by 1 May 2009. Interested parties are invited to submit their comments by 30 September 2008.

July 25, 2008 | Permalink | Comments (0) | TrackBack (0)

DOJ v. Realtors: Back in the Ring

Posted by D. Daniel Sokol

J. Bruce McDonald (Jones Day) writes on DOJ v. Realtors: Back in the Ring.

ABSTRACT: The question is not “will” but “when” will antitrust enforcers challenge any new real estate broker association rules prescribing how the brokers compete. The U.S. Department of Justice antitrust lawsuit against the Consolidated Multiple Listing Service is just the latest in the long-running battle between the real estate broker industry and the DOJ and U.S. Federal Trade Commission over what if any limitations the industry can impose on competition by new business models made possible by the Internet.

The development of Multiple Listing Services (“MLSs”) may have been the most significant development in the residential real estate market in the twentieth century. A joint venture among brokers, an MLS allows brokers to communicate to other brokers their listing information on homes their clients want to sell, obtain information on homes their clients may want to buy, and cooperate in other ways, including making arrangements to share commissions. By providing a mechanism to pool their listings on all or nearly all homes in a locality, an MLS increases the quality and lowers the cost of the services brokers provide to buyers and sellers of houses. These joint ventures are largely procompetitive and so valuable that participation in the local MLS is necessary for a broker to compete in almost any local market.

As it has for so many other industries, the Internet has revolutionized how Americans shop for homes. Since the MLS was conceived, the Internet more than anything has improved communication of listing information among brokers—and now directly to home buyers. Obtaining listing information once required an in-person visit with a broker, who could search the MLS “book” or later a brokers’ electronic database. Today brokers and broker associations can make the MLS database available immediately and efficiently to their clients. Brokers’ websites have become known as Virtual Office Websites because they make available all the services once found only in a broker’s office. VOWs now are present in many real estate markets, although not all. Beginning in the late 1990s, the introduction of VOWs has changed how Americans shop for homes, just as the Internet has changed how they shop for books, music, clothing, and even cars, insurance, and other products and services.

Incumbent brokers responded to VOW entry in various ways. Some incumbents immediately embraced the new technology themselves, to face off against the new entrants. Others advocated that there be less cooperation among traditional brokers and the web-based entrants. Their arguments have raised a number of antitrust law and policy issues that still are being addressed by local broker associations, government agencies, and the public—and are making their ways through the courts. Some broker associations have imposed rules that limit the ability of VOW-based brokers to be members of a local broker association and its MLS or to have access to the MLS listing information. There now have been numerous actions challenging these rules by government antitrust authorities: the DOJ’s Antitrust Division, the FTC, and some state attorneys general. The CMLS case is only the latest in a series of antitrust agency enforcement actions against broker associations that have limited VOWs’ use of MLSs.

July 25, 2008 | Permalink | Comments (0) | TrackBack (0)

Resale Price Maintenance and the Rule of Reason

Posted by D. Daniel Sokol

Howard Marvel (Ohio State - Economics) discusses Resale Price Maintenance and the Rule of Reason.

ABSTRACT: A presumption that RPM is anticompetitive unless rebutted by a showing of efficiencies will not move the needle far from per se illegality, given the difficulties of conclusively proving efficiencies. In contrast, a default rule requiring proof of anticompetitive impact will also be tough to overcome, mostly because such anticompetitive outcomes appear to be rare. A rule between these polar defaults will be difficult to implement, as comparison periods with and without RPM are unlikely to be available. Indeed, when firms have agreed to drop RPM, the results for interbrand competition have ranged from troubling to disastrous. Without such comparisons, efficiency explanations for RPM run a significant risk of being dismissed as pretextual. If the problem of sorting uses of RPM according to their economic effects is tough, shortcuts can result in very inefficient outcomes. For example, we will see below that the states have continued to espouse an economically inappropriate price effects test.  At the end of this article, I provide suggestions for dealing with the transition period between illegality and the emergence of an agreed-upon rule of reason framework.

July 25, 2008 | Permalink | Comments (0) | TrackBack (0)

Sequential Versus Simultaneous Market Delineation: The Relevant Antitrust Market for Salmon

Posted by D. Daniel Sokol

Eating a bagel with lox and cream cheese this morning for breakfast, the following article had particular relevance - Sequential Versus Simultaneous Market Delineation: The Relevant Antitrust Market for Salmon by Niels Haldrup, University of Aarhus - Department of Economics; Peter Mollgaard, Copenhagen Business School - Department of Economics; University of Aarhus - Department of Management; and Claus Kastberg Nielsen, Copenhagen Economics.

ABSTRACT:  Delineation of the relevant market forms a pivotal part of most antitrust cases. The standard approach is sequential. First the product market is delineated, then the geographical market is defined. Demand and supply substitution in both the product dimension and the geographical dimension will normally be stronger than substitution in either dimension. By ignoring this, one might decide first to define products narrowly and then to define the geographical extent narrowly ignoring the possibility of a diagonal substitution. These reflections are important in the empirical delineation of product and geographical markets. Using a unique data set for prices of Norwegian and Scottish salmon, we propose a methodology for simultaneous market delineation and we demonstrate that compared to a sequential approach conclusions will be reversed.

July 25, 2008 | Permalink | Comments (0) | TrackBack (0)

Thursday, July 24, 2008

The United States Department of Justice Antitrust Division's Cartel Enforcement: Appraisal and Proposals

Posted by D. Daniel Sokol

Jconnor John Connor of Purdue University's Applied Economics Department offers some important thoughts on DOJ's cartel enforcement program in his paper The United States Department of Justice Antitrust Division's Cartel Enforcement: Appraisal and Proposals.

ABSTRACT: This paper evaluates the effectiveness of the efforts of the Antitrust Division of the U.S. Department of Justice (hereafter "Division") to detect, indict, and deter horizontal collusion, and to offer suggestions for policy or procedural changes that are likely to improve that enforcement. It is unusual to read much negative criticism of federal cartel enforcement. Indeed, for decades the Division has largely been lionized for its aggressive campaign to rid the nation and the world of cartels.

Division leaders emphasize that collusion is the agency's number-one priority. Paradoxically, there is evidence that the number, size, and injuriousness of discovered cartels is increasing. This is particularly true for international cartels.

Since 1990, the number of cartel investigations has not risen appreciably. Moreover, the number of criminal Section 1 cases filed annually fell during 1990-2007. Even from 1995-99 to 2004-06 cartel cases filed fell by 49%. Moreover, the number of corporations charged annually averaged 68 in 1990-1994 and dropped continuously throughout 1995-2007. There now is a significant and growing backlog of criminal investigations and unresolved matters that may exceed the Division's ability to dispose of cases effectively.

Although the Division is bringing fewer Section 1 cases, the monetary penalties imposed on convicted price fixers have grown. The total amount of cartel fines imposed since FY1990 is approximately $4.2 billion, but damages recouped by private plaintiffs in the United States are roughly four times as large.

Division policy statements place great weight on the deterrence value of predictably high prison sentences for convicted cartel managers. Not only the frequency but also the severity of prison sentences has increased. These trends are positive in terms of cartel deterrence. However, the number of prison-days imposed per person is flat; the number of carve-outs of officers of guilty corporations is also flat.

There is no question that higher cartel penalties would be in the public interest, especially for international cartels. The Division should take several steps to expand potential fines that do not require new legislation. They include: filing more multiple counts, substituting the global affected sales of cartels members in place of U.S. sales when computing the base fine, applying the principle of joint and several liability to maximum fines, using the middle or upper end of the Guidelines' range as the standard starting demand in plea negotiations, applying strong culpability multipliers to recidivists, and requiring cartel fines to include pre-plea interest. Other improvements would require changes in the U.S. Sentencing Guidelines (USSGs). For example, the 10% overcharge assumption should be raised to at least 20 or 30%, with the latter applying to international conspiracies. To effectively deter cartels, a substantial increase in Division positions and budget is amply justified; perhaps at least a 50% increase in professional positions dedicated to cartel matters.

July 24 Update

Listen to Scott Hammond's (DOJ) comments on this paper.

July 24, 2008 | Permalink | Comments (0) | TrackBack (0)