Thursday, July 24, 2008

The Viability Of Antitrust Price Squeeze Claims

Posted by D. Daniel Sokol

Herb Hovenkamp of the University of Iowa Law School and Erik N. Hovenkamp, University of Iowa - Department of Economics, B.S. Candidate 2009 (I am guessing this is Herb's son) have written on The Viability Of Antitrust Price Squeeze Claims.

ABSTRACT: At this writing the Supreme Court has granted certiorari in the Ninth Circuit's Linkline decision holding that the plaintiff stated a claim for an unlawful price squeeze. A price squeeze occurs when a vertically integrated firm "squeezes" a rival's margins between a high wholesale price for an essential input sold to the rival, and a low output price to consumers for whom the two firms compete. Here we examine the law and economics of the price squeeze, beginning with Judge Hand's famous discussion in the Alcoa case in 1945. While Alcoa has been widely portrayed as creating a "fairness" or "fair profit" test for unlawful price squeezes, Judge Hand actually adopted a cost-based test, although a somewhat different one than most courts and scholars would adopt today. We conclude that Brooke Group style predatory pricing tests are not appropriate to the concerns being raised in a price squeeze. We also consider several efficiency explanations, the importance of joint costs, situations in which the dominant firm uses a squeeze to appropriate the fixed cost portion of the rival's investment, as well as those where the shared input is a fixed rather than variable cost for the rival. Ultimately, we find little room for liability except in one circumstance where a squeeze is used to restrain the rival's vertical integration into the monopolized market.

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

India's New Competition Law: A Comparative Assessment

Posted by D. Daniel Sokol

Aditya Aditya Bhattacharjea of the University of Delhi - Delhi School of Economics has a forthcoming article on India's New Competition Law: A Comparative Assessment.

ABSTRACT: This paper critically examines India's new Competition Act. I begin by examining the working of its predecessor, the 1969 Monopolies and Restrictive Trade Practices Act. Earlier studies, as well as a survey of recent cases undertaken for this paper, show that most cases under that Act involved consumer complaints and contractual disputes unrelated to competition. Very few cartels were prosecuted, the development of a rule of reason for vertical agreements was hamstrung by the legislature, and merger review was terminated in 1991. Thereafter, judgments increasingly tried to enforce "fair" business conduct "in the public interest," often protecting competitors rather than competition. India thus has little relevant experience for the many technical economic criteria in the Competition Act. Although the new Act has several positive features, it is riddled with loopholes that might condone hard-core cartels, predatory pricing, and potentially anticompetitive cross-border mergers, while it also perpetuates the earlier tendency to penalize "unfair" behavior with no bearing on competition. I argue that several institutional limitations will also impair the Act's effectiveness and conclude with a plea for capacity building and phased implementation.

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

Wednesday, July 23, 2008

Agenda for Roundtable on 'FTC at 100: Into Our Second Century'

Posted by D. Daniel Sokol

The agenda for the very important Roundtable on 'FTC at 100: Into Our Second Century', which will be held on July 29-30, 2008 is now available.  These panels look great and the panelists are all top notch.  I commend the Commission for undertaking this critical self study and hope that we see some implementation of this self study.

According to the press release, "The sessions on July 29-30 will be composed of a series of panels designed to examine: 1) the FTC's Mission, Structure, and Resources, 2) the Deployment of Agency Resources in the Enforcement Area, 3) the Deployment of Agency Resources in the Policy Research and Development Areas, 4) the Agency's External Relationships, 5) Characteristics of a Successful Government Agency, 6) the Effectiveness of the FTC's Competition Mission, 7) the Effectiveness of the FTC's Consumer Protection Mission, and 8) How to Measure the Welfare Effects of the FTC's Competition and Consumer Protection Efforts."

July 23, 2008 | Permalink | Comments (0) | TrackBack (0)

The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger

Posted by D. Daniel Sokol

Joseph A. Clougherty, Wissenschaftszentrum Berlin (WZB) and Tomaso Duso, Humboldt University of Berlin - School of Business and Economics, Wissenschaftszentrum Berlin für Sozialforschung (WZB) discuss The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger in their latest working paper.

ABSTRACT:  It is commonly perceived that firms do not want to be outsiders to a merger between competitor firms. We instead argue that it is beneficial to be a non-merging rival firm to a large horizontal merger. Using a sample of mergers with expert-identification of relevant rivals and the event-study methodology, we find rivals generally experience positive abnormal returns at the merger announcement date. Further, we find that the stock reaction of rivals to merger events is not sensitive to merger waves; hence, 'future acquisition probability' does not drive the positive abnormal returns of rivals. We then build a conceptual framework that encompasses the impact of merger events on both merging and rival firms in order to provide a schematic to elicit more information on merger type.

July 23, 2008 | Permalink | Comments (0) | TrackBack (0)

Implementation of China's AML

Posted by D. Daniel Sokol

In something that should come as no surprise to readers of this blog, today's Wall Street Journal reports on problems with the implementation of the Chinese Anti-Monopoly Law.

July 23, 2008 | Permalink | Comments (0) | TrackBack (0)

The New Spanish Competition System

Posted by D. Daniel Sokol

Carlos Pascual Pons (Comisión Nacional de la Competencia) provides an overview of The New Spanish Competition System.

ABSTRACT: The new Spanish Competition Act, which was unanimously approved by the Spanish Parliament and came into force on the first of September 2007, introduces significant modifications to the system applied to date. This Act builds on the system designed by the 1989 Act, largely drawing on the experience gained at the Community and national level during the last two decades.

The reform stems from the need to face national and European legislation changes. At a national level, a number of complementary regulations had been enacted, such as the Act 1/2002, dated February 21, concerning the Coordination of the Competences of the State and the Regional Governments on antitrust matters. This Act was the result of a Constitutional Court Ruling, and sets an allocation scheme of responsibilities where no overlapping is allowed.

Moreover, over the last few years, a significant reform has taken place in the EU antitrust framework which has resulted in the new Council Regulation (EC) No. 139/2004, of January 20, 2004, on merger control and, above all, in the modernization of the fight against anticompetitive practices based on the Council Regulation (EC) No. 1/2003, of December 16, 2002, and on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty. The latter set up a new distribution of responsibilities among the European Commission, national authorities, and national courts (national judicial bodies). On the other hand, the modernization brings about a new legal exemption system that substitutes the former regime of individual authorizations.

In this context, the reform takes into account the evolution of the Spanish economy marked by a significant transformation of its market structure, from certain public monopolies to free competition, after a process of privatization, liberalization, and deregulation, in order to achieve a competitive environment. To achieve effective market competition, the role played over the last fifteen years by the competition authorities has been vital. This role has operated through a dual and complementary approach. On the one hand, a certain deterrent capability has been created either by sanctioning anticompetitive practices, mainly after parties’ complaints, or by hindering the appearance of anticompetitive market structures, through the blocking or conditioning of relevant concentrations. On the other hand, authorities had somehow pursued an offensive advocacy approach when it came to the design of the liberalization processes and the guarantee that these processes were correctly directed towards free competition.

July 23, 2008 | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 22, 2008

Footloose Monopolies: Regulating a "National Champion"

Posted by D. Daniel Sokol

Giacomo Calzolari, University of Bologna - Department of Economics and Carlo Scarpa, University of Brescia have a new working paper on Footloose Monopolies: Regulating a "National Champion"

ABSTRACT: We analyze the design of optimal regulation of a domestic monopolist that also competes in an unregulated foreign market. We show how foreign activities by the regulated firm affect domestic regulation, consumers' surplus and firm's profits. Although expansion in unregulated foreign markets amplifies the regulatory distortions that are caused by the regulator's limited information, we also show that allowing the firm to compete abroad does not necessarily harm domestic consumers and we analyze if and when the firm's decision to expand abroad does in fact coincide with consumers' interests in the regulated market.

July 22, 2008 | Permalink | Comments (0) | TrackBack (0)

Facilitating Practices and Concerted Action Under Section 1 of the Sherman Act

Posted by D. Daniel Sokol

Page_big Bill Page of the University of Florida Levin College of Law recently posted Facilitating Practices and Concerted Action Under Section 1 of the Sherman Act.

ABSTRACT: Successful collusion requires that rivals reach consensus on the key terms and deploy some means of detecting and penalizing cheaters, usually by tracking rivals' transaction prices. Economists have shown that firms in an oligopoly can, in certain conditions, achieve noncompetitive prices and outputs without an express agreement by making choices that anticipate each others' likely responses. "Facilitating practices" are mechanisms that enhance rival firms' ability to police such an arrangement. If firms expressly agree to adopt one of these facilitating practices, for example as a trade association rule, and the effect of the practice is to reduce competition, then that agreement may be independently illegal under Section 1 of the Sherman Act. Moreover, the Sherman Act may preempt a state law that requires rivals to use a facilitating practice. A more difficult question arises, however, where the firms each adopt the same facilitating practice without any express agreement: does parallel pricing together with parallel adoption of facilitating practices allow a court to infer the requisite agreement? Both Donald Turner and Richard Posner believed that, unlike simple parallel pricing, the parallel adoption of a facilitating practice that permits noncompetitive pricing should be unlawful, because the problem of remedy is mitigated.

But conduct is not evidence of an anticompetitive agreement simply because it can be enjoined. Facilitating practices may do more than simply facilitate rivals' efforts to achieve an inefficient oligopoly price. They also may provide certain immediate benefits to consumers by, among other things, reducing search or transaction costs. In these circumstances, the firms' adoption of the practice might well be for the benign reason rather than the collusive reason. Courts will not easily infer an agreement from the parallel adoption of facilitating practices where the practices have beneficial functions apart from facilitating price coordination.

Unfortunately, the stated legal definitions of agreement under which courts evaluate circumstantial evidence, including facilitating practices, are inadequate. In this article, I review the deficiencies of the present law governing the definition and proof of agreement under Section 1 and propose that the law should recognize that communication among rivals is necessary for concerted action. I then examine cases involving facilitating practices in a variety of Section 1 contexts, and suggest that the courts have come to recognize the importance of communications among rivals in evaluating whether the evidence warrants an inference of agreement.

July 22, 2008 | Permalink | Comments (0) | TrackBack (0)

Slot-Based Approaches to Airport Congestion Management

Posted by D. Daniel Sokol

Image003 Jan K. Brueckner, University of California, Irvine - Department of Economics has a new paper on one of my pet issues, Slot-Based Approaches to Airport Congestion Management

ABSTRACT: This paper analyzes slot-based approaches to management of airport congestion, using a model where airlines are asymmetric and internalize airport congestion. Under these circumstances, optimal congestion tolls differ across carriers, and since a slot-sale regime (with its uniform slot price) cannot duplicate this pattern, the equilibrium it generates is inefficient. Flight volumes tend to be too low for large carriers and too high for small carriers. Under a slot-trading regime or a slot auction, however, the existence of a fixed number of slots causes carriers to treat total flight volume (and thus congestion) as fixed, and this difference can lead to an efficient outcome.

July 22, 2008 | Permalink | Comments (0) | TrackBack (0)

Monday, July 21, 2008

Competition Bureau Publishes Enforcement Guidelines on Predatory Pricing

Posted by D. Daniel Sokol

According to its press release, "The [Canadian] Competition Bureau today published Enforcement Guidelines on Predatory Pricing. These guidelines describe the Bureau's enforcement approach to predatory pricing and will help ensure that Canadian businesses and the public understand when pricing below cost may result in an investigation under the Competition Act."

July 21, 2008 | Permalink | Comments (0) | TrackBack (0)

The Antitrust Standard for Unlawful Exclusionary Conduct

Posted by D. Daniel Sokol

Herberthovenkampphp Herb Hovenkamp of the University of Iowa Law School has written on The Antitrust Standard for Unlawful Exclusionary Conduct.

ABSTRACT: This essay considers the general definition of unlawful exclusionary practices under Section 2 of the Sherman Act as acts that: (1) are reasonably capable of creating, enlarging or prolonging monopoly power by impairing the opportunities of rivals; and (2) that either (2a) do not benefit consumers at all, or (2b) are unnecessary for the particular consumer benefits claimed for them, or (2c) produce harms disproportionate to any resulting benefits. An important purpose of this progression of queries is to permit the court to avoid balancing, although balancing certainly cannot be avoided in some close cases. The given definition is very general, in the sense that it does not provide precise tests for specific practices, such as improper patent infringement suits or predatory pricing. Numerous definitions of exclusionary conduct have been proposed that are more focused or more technical, and some of these may be more useful for analyzing specific exclusionary practices than the very general definition offered here. However, as this paper develops, these definitions are also incomplete, in the sense that they do not account for every type of exclusionary conduct that the law of monopolization should condemn. Proof of actual consumer harm is generally unnecessary to the definition, but the challenged conduct must be of a type that the anticipated end result is actual consumer harm. Of course, the private plaintiff must prove the requisite actual or threatened harm to itself. Most importantly, the given definition of monopolizing conduct is flexible and frees the court of doctrinal rigidity, but it requires an extremely careful determination that the defendant has substantial market power.

July 21, 2008 | Permalink | Comments (0) | TrackBack (0)

Impact of the Economic Politics in Agreement of Open Skies in Chile

Posted by D. Daniel Sokol

Marcelo Villena, University of Adolfo Ibanez - Economics, Rodrigo Harrison, Catholic University of Chile - Economics and Mauricio Villena, University of Adolfo Ibanez - Business School have posted a paper on the Impact of the Economic Politics in Agreement of Open Skies in Chile.

ABSTRACT:  In 1979, the "Ley de Aviaciýn Comercial" (Commercial Aviation Act) was passed in Chile. Its main goal was to improve the air transport by means of "Open Sky Policies", competence (freedom of prices) and a progressive lesser intervention of the official authority. Since then an international air policy is applied under the frame of "Open Skyes with Reciprocity". This article evaluates economically the impact of the Chilean liberalization policy in this market during the last years. Specifically, we evaluated the impacts of the Agreements on Open Skyes that Chile has reached with the most important countries in terms of air traffic. Besides that, a comparison is made with other countries in the region with lower levels of economic openness.

July 21, 2008 | Permalink | Comments (0) | TrackBack (0)

Merger Simulation in Competition Policy: A Survey

Posted by D. Daniel Sokol

Oliver Budzinski, University of Marburg - Faculty of Economics and Business Administration and Isabel Ruhmer, University of Mannheim - Center for Doctoral Studies in Economics and Management provide Merger Simulation in Competition Policy: A Survey.

ABSTRACT: Advances in competition economics as well as in computational and empirical methods have offered the scope for the employment of merger simulation models in merger control procedures during the past almost 15 years. Merger simulation is, nevertheless, still a very young and innovative instrument of antitrust and, therefore, its "technical" potential is far from being comprehensively exploited and teething problems in its practical use in the antitrust environment prevail. We provide a classification of state-of-the-art merger simulation models and review their previous employment in merger cases as well as the problems and limitations currently associated with their use in merger control. In summary, merger simulation models represent an important and valuable extension of the toolbox of merger policy. However, they do not qualify as a magic bullet and must be combined with other, more traditional instruments of competition policy in order to comprehensively unfold its beneficial effects.

July 21, 2008 | Permalink | Comments (0) | TrackBack (0)

Saturday, July 19, 2008

Competition vs. Regulation in Mobile Telecommunications

Posted by D. Daniel Sokol

Thomas Tangerås, Research Institute of Industrial Economics and Johan Stennek, Research Institute of Industrial Economics have an interesting paper on Competition vs. Regulation in Mobile Telecommunications.

ABSTRACT: This paper questions whether competition can replace sector-specific regulation of mobile telecommunications. We show that the monopolistic outcome may prevail independently of market concentration when access prices are determined in bilateral negotiations.

A light-handed regulatory policy can induce effective competition. Call prices are close to the marginal cost if the networks are sufficiently close substitutes. Neither demand nor cost information is required.

A unique and symmetric call price equilibrium exists under symmetric access prices, provided that call demand is sufficiently inelastic. Existence encompasses the case of many networks and high network.

July 19, 2008 | Permalink | Comments (0) | TrackBack (0)

Friday, July 18, 2008

Competition in Coffee - The Starbucks Closure List

Posted by D. Daniel Sokol

Though not about competition policy, I do want to focus on what competition does in the marketplace-- the market punishes companies that over-expand. 

Here is the link to the 600 Starbucks sites that will be closing with a map by state.

HT: Legal Profession Blog

July 18, 2008 | Permalink | Comments (2) | TrackBack (0)

Should Price Squeeze Be a Recognized Form of Anticompetitive Conduct?

Posted by D. Daniel Sokol

Carlton Dennis Carlton of the University of Chicago Graduate School of Business asks Should Price Squeeze Be a Recognized Form of Anticompetitive Conduct?

ABSTRACT: Should a price squeeze constitute anticompetitive conduct requiring investigation under the antitrust laws? A price squeeze occurs when a vertically integrated firm supplies an input to its downstream competitors at a price that generates a profit margin so low that the competitors exit the downstream market. I ask whether it is sensible to try to use antitrust laws to prevent such conduct or whether such an attempt would create more harm than benefit. The current case, linkLine Communications, Inc. v. SBC California, Inc., raises this exact question.

July 18, 2008 | Permalink | Comments (0) | TrackBack (0)

Competing for Managerial Talent: What Antitrust Can Tell Us About Antitakeover Statutes

Posted by D. Daniel Sokol

Valeriya Mikhno (University of Alberta) asks about Competing for Managerial Talent: What Antitrust Can Tell Us About Antitakeover Statutes

ABSTRACT: This paper looks at the antitrust implications of state antitakeover statutes. After a wave of hostile takeovers in the 1980s, many state legislatures, lobbied by the managerial interests, enacted laws that made it more difficult for outsiders to take over target corporations. This, in turn, has led to inefficient entrenchment of management and adverse consequences for shareholders. This paper argues that such inefficiencies are inconsistent with the aims and purposes of antitrust laws. Hence, in so far as antitakeover statutes conflict with the goals of antitrust, the latter should trump the former.

The paper examines the controversy surrounding antitakeover legislation. The paper will discuss both the theories supporting strong managerial protection and the elimination of hostile takeovers and the theories supporting the claim that takeovers are a productive method of improving the control and management of assets.

The analysis of various antitakeover statutes and its effects on the market for corporate control is provided along with the discussion of whether antitakeover legislation decreases the shareholder value and unjustifiably entrenches targets' management. State legislatures, competing for corporate charters, have enacted stricter antitakeover legislation, giving the management rights that shareholders were not willing to give. Antitakeover defenses are numerous and extensive and allow managers to just say no without breaching their fiduciary duties.

Such legislation deprives shareholders of a substantial premium, protects inefficient management, and has negative effects on the national economy as a whole. This is contrary to the goals of efficiency that lay at the foundation of antitrust laws.

July 18, 2008 | Permalink | Comments (0) | TrackBack (0)

The European Microsoft Case at the Crossroads of Competition Policy and Innovation

Posted by D. Daniel Sokol

Larouche Pierre Larouche, Tilburg University and the College of Europe provides his assessment of The European Microsoft Case at the Crossroads of Competition Policy and Innovation

ABSTRACT: This article puts the judgment of the EC Court of First Instance (CFI) in Microsoft in perspective and links it with the ongoing discussion on competition policy and innovation. It also replies to some claims made by Ahlborn and Evans in their piece on the same judgment (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1115867). The first section takes a general look at the judgment, and in particular at how the CFI issued a judgment from which it would be difficult to appeal. It also addresses the allegedly excessive deference of the CFI towards the Commission decision (1). Afterwards, the paper goes into more specific issues concerning the first part on interoperability information (2) and the second part on tying (3). Finally, the judgment is placed in a broader forward-looking perspective (4).

July 18, 2008 | Permalink | Comments (0) | TrackBack (0)

Thursday, July 17, 2008

The Neoclassical Crisis In U.S. Competition Policy, 1890-1955

Posted by D. Daniel Sokol

In one of the most interesting papers of the year, Herb Hovenkamp (University of Iowa College of Law) has written  The Neoclassical Crisis In U.S. Competition Policy, 1890-1955.

ABSTRACT:  The development of marginalist, or neoclassical, economics led to a fifty-year long crisis in competition theory. Given an industrial structure with sufficient fixed costs, competition always became "ruinous," forcing firms to cut prices to marginal cost without sufficient revenue remaining to pay off investment. Early neoclassicists such as Alfred Marshall were not able to solve this problem, and as a result many economists were hostile toward the antitrust laws in the early decades of the twentieth century. The ruinous competition debate came to an abrupt end in the early 1930's, when Joan Robinson and particularly Edward Chamberlin developed models that took product differentiation into account. The emergent theory of monopolistic competition came with its own problems, however - namely, "excessive" product variety and advertising, chronic excess capacity, and prices above short-run marginal cost. In sharp contrast to the ruinous competition model, the monopolistic competition model called for aggressive antitrust enforcement. This change of model largely explains the Roosevelt administration's abrupt shift in antitrust policy between the First and Second New Deals. Only with John Maurice Clark's theory of workable competition in 1940 and the Mason-Bain structure-conduct-performance paradigm developed in the 1950s did neoclassical competition theory begin to reach a new equilibrium which attempted to calibrate the amount and kind of competition policy necessary to produce satisfactory results in diverse markets. The subsequent debate between Harvard structuralism and the emergent Chicago School occurred largely within this paradigm.

July 17, 2008 | Permalink | Comments (0) | TrackBack (0)

FTC Guide to Antitrust Laws

Posted by D. Daniel Sokol

The FTC has posted a wonderful new online resource- a guide to the US Antitrust Laws.

July 17, 2008 | Permalink | Comments (0) | TrackBack (0)