Antitrust & Competition Policy Blog

FTC Issues Performance and Accountability Report for FY2008

Posted by D. Daniel Sokol

The FTC has issued its Performance and Accountability Report (PAR) for FY2008.   

The PAR begins with a “Message from the Chairman” and includes three parts: Part I contains management’s discussion and analysis of the FTC’s performance and financial activities, including the agency’s Mission Challenges; Part II contains the Performance Report; and Part III contains the agency’s financial statements and independent audit results. The PAR can be viewed at www.ftc.gov/par. 

European Commission Issues Preliminary Report on Pharmaceutical Sector Inquiry Highlights Cost of Pharma Companies' Delaying Tactics

Posted by D. Daniel Sokol

According to the press release on the Commission's Competition Policy website:

The European Commission has published its preliminary report on the competition inquiry into the pharmaceutical sector, which finds that competition in this industry does not work as well as it should. According to the preliminary findings there is evidence that originator companies have engaged in practices with the objective of delaying or blocking market entry of competing medicines. Practices vis-à-vis generic companies include multiple patent applications for the same medicine (so-called patent clusters), initiation of disputes and litigation, conclusion of patent settlements which constrain market entry of generic companies and interventions before national authorities when generic companies ask for regulatory approvals. Where successful, these practices result in significant additional costs for public health budgets – and ultimately taxpayers and patients – and reduce incentives to innovate. The report takes a sample of medicines that faced loss of exclusivity in the period 2000 to 2007 in 17 Member States and estimates that additional savings of around € 3 billion would have been possible on that sample over this period if generic medicines had entered the market without delay. The report also finds that companies applied defensive patenting strategies, primarily aimed at blocking competitors in the development of new medicines.

Next Steps in the Evolution of Antitrust Law: What to Expect from the Roberts Court

Posted by D. Daniel Sokol

Greg Werden of DOJ Antitrust gives us some predictions in his piece Next Steps in the Evolution of Antitrust Law: What to Expect from the Roberts Court.

ABSTRACT: Under the leadership of Chief Justice John G. Roberts, Jr., the Supreme Court has demonstrated a willingness to cast aside the Court's prior antitrust decisions. The qualified per se rule applicable to tying surely will not survive much longer, but what else might be in store is more speculative. This essay identifies four decisions relating to competitor collaboration in which the Court's prior application of the per se rule does not comport with its modern decisions. In two of the cases, the conduct likely would be found lawful today; while in the other two, the conduct most likely still would be condemned but only after an abbreviated application of the rule of reason. This essay also identifies three legal doctrines ready for retirement. They are the absolute requirement of market delineation as a predicate for merger analysis, the outmoded approach to market delineation of Brown Shoe, and the unhelpful formulation of the monopolization offense in Grinnell.

Competition Policy Issues in the Consumer Payments Industry

Posted by D. Daniel Sokol

Given that today is known as Black Friday in the United States (the busiest shopping day of the year) it is only fitting that we focus on consumer payments and antitrust.  Nicholas Economides, NYU - Stern School of Business presents an interesting proposal in his paper Competition Policy Issues in the Consumer Payments Industry.

ABSTRACT: We discuss the current structure of card networks that facilitate transactions between merchants and consumers. We find that presently fees for this intermediation are considerably higher than costs. This is facilitated by rules imposed by the card networks on the merchants that do not allow merchants to steer competition to cards that have lower fees. It has also been facilitated by the requirement that a merchant has to accept all cards of the same network (honor all cards rule) - recently abolished in the US, as well as by the fact that the networks set the maximum interface fee between issuing and acquiring banks. We propose the abolition of anti-steering rules so that merchants are able to pass on card holders the costs of the card they use. This will facilitate inter- and intra-network competition and will improve the competitiveness and efficiency of the market.

New Web Design for the Global Competition Review

Posted by D. Daniel Sokol

The Global Competition Review has launched a much improved web site.

Cournot Duopoly When the Competitors Operate Multiple Production Plants

Posted by D. Daniel Sokol

Fabio Tramontana (Università di Urbino - Economics), Laura Gardini (Università di Urbino - Economics), and Tönu Puu (CERUM, Umeå University) discuss Cournot Duopoly when the Competitors Operate Multiple Production Plants in their latest paper.

ABSTRACT: This article considers a Cournot duopoly under an isoelastic demand function and cost functions with built-in capacity limits. The special feature is that each fi…rm is assumed to operate multiple plants, which can be run alone or in combination. Each …firm has two plants with different capacity limits, so each has three cost options, the third being to run both plants, dividing the load according to the principle of equal marginal costs. As a consequence, the marginal costs functions come in three disjoint pieces, so the reaction functions, derived on basis of global pro…fit maximization, may also consist of disjoint pieces. This is reflected in a particular bifurcation structure, due to border collision bifurcations, and to particular basin boundaries, related to the discontinuities. It is shown that stable cycles may coexist, and the non-existence of unstable cycles constitutes a new property. We also compare the coexistent short periodic solutions in terms of the resulting real pro…fits.

Judicial Review in French Competition Law and Economic Regulation - A Post-Commission v. Tetra Laval Assessment

Posted by D. Daniel Sokol

Nicolas Petit, University of Liege Law (and Howrey) and Louise Rabeux (Howrey) provide some analysis on Judicial Review in French Competition Law and Economic Regulation - A Post-Commission v. Tetra Laval Assessment.

ABSTRACT: The present article seeks to assess the degree of judicial scrutiny performed by French courts when reviewing National Competition Authorities ("NCAs") and National Regulatory Authorities ("NRAs") decisions in the aftermath of the seminal ruling handed down by the European Court of Justice (the "ECJ") in Commission vs. Tetra Laval.

In this judgment, the ECJ considered that the European Community ("EC") courts should refrain from engaging in a de novo assessment of the decisions adopted by the European Commission (the "Commission"), when enforcing EC competition rules and, arguably, in other fields such as sector-specific regulation.

In light of the general duty of Member States to fully ensure the effet utile of EC legislation, the question arises whether the Tetra Laval standard of judicial review promoted by the ECJ has been endorsed by national courts, when reviewing decisions of NCAs and NRAs. Indeed, the equally ranking principle of procedural autonomy implies that national legal orders should remain free to decide the degree of judicial scrutiny applicable to decisions from national regulators.

The present article examines whether the French courts have drawn inspiration from the ECJ's lax standard of judicial review in Commission vs. Tetra Laval, or if, on the contrary, a stricter standard prevails under French law. To that end, it is divided into four sections, which follow a chronological approach. The first section provides an overview of the specificities of the French judicial review system in the pre-Tetra Laval world (I). As in the French judicial system many courts have jurisdiction over regulators' decisions, it seeks to clarify who judges the regulators, the judicial remedies available to regulated entities and the degree of judicial scrutiny traditionally exercised over regulators' decisions in the pre-Tetra Laval period.

The second section offers a brief analysis of Commission vs. Tetra Laval where the Court introduced a new standard of judicial review different from that found in previous case-law. It argues that the ECJ's judgment marks a striking piece of judicial deference towards regulators' decisions (II).

The third section determines whether the Tetra Laval judgment has impacted on the degree of judicial scrutiny applied in practice by French courts when reviewing regulators' decisions in the areas of competition law (including merger control and antitrust) and sector-specific regulation (III). We find that French courts have not followed the Tetra Laval ruling in the area of competition law, and, to the contrary, that they scrutinize intensively the procedural aspects but also the merits of the NCAs' decisions. By contrast, French courts display a much higher degree of deference with respect to NRAs' decisions in the field of sector-specific regulation.

The fourth section offers a brief conclusion (IV).

Free Movement of Judgments: Increasing Deterrence of International Cartels Though Jurisdictional Reliance

Posted by D. Daniel Sokol

Michal Gal of the University of Haifa Law School writes on Free Movement of Judgments: Increasing Deterrence of International Cartels Though Jurisdictional Reliance.

ABSTRACT: This article challenges the conventional wisdom that not much can be done under the existing atomistic system of antitrust enforcement to solve the problem of sub-optimal deterrence of international cartels. Low deterrence results from the fact that international cartels are generally prosecuted by only a fraction of the jurisdictions harmed by them and that monetary sanctions in those jurisdictions are generally based on harm to their domestic markets only. To solve this problem, this article proposes a novel legal tool which enables countries to adopt and rely upon foreign findings of international hard-core cartels, provided that the foreign decisions meet criteria that ensure that such reliance is reasonable and fair. As elaborated, this free movement of judgments holds potential to overcome the main obstacles to efficient deterrence and to significantly increase both domestic as well as global welfare. Its costs can also be largely overcome by designing appropriate solutions. The political implications are also not prohibitive. As shown, jurisdictions already rely on foreign judgments that do not significantly differ from the decisions at hand.

Competition Commission Publishes New Merger Remedy Guidelines

Posted by D. Daniel Sokol

The intrepid antitrust enforcers in the UK at the Competition Commission (CC) have published new guidelines.  These guidelines on merger remedies explain the CC approach to remedies, "such as divestiture, prohibition and behavioural measures, where it decides that mergers are likely to lead to a substantial lessening of competition (SLC)."  The press release further summarizes that:

The guidelines provide a single source of guidance on merger remedies and emphasize measures that are effective and yet minimize burdens on customers, suppliers and merger parties. The new guidelines also cover areas such as intellectual property remedies and behavioural remedies which were not covered in detail in existing guidance.

Airport Congestion: When Theory Meets Reality

Posted by D. Daniel Sokol

The day before Thanksgiving is typically the busiest travel day of the year.  In honor of those of you traveling, you may enjoy reading the article Airport Congestion: When Theory Meets Reality by Michael Levine.

ABSTRACT: Some airports experience significant congestion at least some of the time, where "congestion" means that use of the airport by one aircraft delays or prevents use of the airport in that time slot by another. Another way to say this is that airport access can be "scarce." Virtually all economists agree that when a resource is scarce, it can be allocated most efficiently through the use of a mechanism that prices it to reflect its value to all other potential users. But efficient prices can only be assured in theory when both supply and demand are competitive, markets are complete (they allow purchases in any amount at any time), and the participants maximize utility by maximizing profit.

Analysts have used this theory to argue that airport congestion should be managed through the price mechanism, either by raising prices at peak times or by auctioning off permission to operate at peak times ("slots") to the highest bidder. Recently, the Federal Government has tried to put this theory into practice by instituting slot auctions at the major New York airports. But these airports are owned by a monopolist (as in most cities), the auction market proposal adopted by the FAA leaves markets incomplete by excluding many users and the airport monopolist, here as elsewhere, is a political entity whose goals often conflict with economic efficiency. In addition, the mechanism adopted by the FAA effects a large wealth transfer from airlines to the FAA, a result that may in principle not affect efficiency but which creates enormous resistance on the part of airlines to using the price mechanism and a substantial incentive to use the money for inefficient but politically expedient purposes.

This Essay takes account of these economic and political realities by proposing an auction market that reduces the influence of monopoly, is relatively complete, doesn't involve a wealth transfer, and still preserves choice at the margin that takes into account the value placed by other users on the slot. It establishes a blind auction in which slots are chosen at random and made available to all bidders (including the previous owner), with the proceeds going to the former owner and the amount of both the winning and second-highest bid (but not the identity of the second-highest bidder) made public. This forces the slot owner to explicitly consider the value it places on a slot and to compare it to an actual cash offer that has been revealed by the auction. The airport has no monetary incentive to create scarcity. Wealth transfers are voluntary.

Chambers Asia 2009 Rankings: Best Antitrust Lawyers in Korea

Posted by D. Daniel Sokol

Chambers Asia has ranked the best practices in South Korea.

Band 1    
Kim & Chang    
Yulchon

Band 2
Shin & Kim    
Yoon Yang Kim Shin & Yu

Band 3
Bae, Kim & Lee LLC
Lee & Ko

Band 4
Barun Law
Jisung Horizon Law Offices

Competition for Access: Spectrum Rights and Downstream Access in Wireless Telecommunications

Posted by D. Daniel Sokol

Gijsbert Zwart, CPB Netherlands Bureau of Economic Policy Analysis, Tilburg Law and Economics Center and Michiel J. Bijlsma, CPB Netherlands Bureau of Economic Policy Analysis discuss Competition for Access: Spectrum Rights and Downstream Access in Wireless Telecommunications.

ABSTRACT: We study downstream entry and capacity choice in the market for wireless elecommunications, where licenses to use radio spectrum - an essential input - are in the hands of vertically integrated oligopolists. Prior to network construction these incumbents may offer contracts for capacity to an entrant, granting service-based access on the network they will construct. Alternatively, when spectrum trading is allowed, they may sell part of their license, allowing the entrant to build its own network and enter as an infrastructure player. We find that in this cournot setting access is generally provided, as incumbents compete to appropriate the profits of serving a differentiated market through the entrant. Although selling spectrum rights instead of network capacity leads to a loss of economies of scale in infrastructure construction, infrastructure-based entry may dominate as a result of a strategic effect. By delegating capacity choice to the entrant, the access providing incumbent can commit to compete more aggressively, causing its rival to reduce capacity.

Airline Competition in the British Isles

Posted by D. Daniel Sokol

Alberto A. Gaggero (Università degli Studi di Genova - Economics) and Claudio Piga (Loughborough University - Economics) discuss Airline Competition in the British Isles.

ABSTRACT: We study the relationship between pricing and market structure on the routes connecting the UK and the Republic of Ireland. Because in 2007 the European Commission prohibited the takeover of Aer Lingus by Ryanair, the analysis focuses on their pricing strategies in particular. We use an original dataset of fares posted on-line, which allows to control for the fares' intertemporal pattern for each specific flight and each carrier's specific yield management system. Our evidence supports the European Commission's view that the elimination of a competitor in the Irish airline market is likely to have harmful consequences for consumers.

FTC Seeks Supreme Court Review of Rambus Decision

Posted by D. Daniel Sokol

The petition is here.  For those who want a summary, the FTC press release notes:

According to the Commission’s complaint, Rambus engaged in deceptive conduct as a participant in a standard-setting organization (SSO) by withholding vital information about the patents it was seeking, misleading SSO members about its patent interests, and using information it got through its SSO participation, to secretly amend patent applications to ensure that ultimately it would obtain patent interests in industry standards for computer memory technologies. Following an administrative trial, the Commission found that such deception occurred, that it adversely affected competition in the standard-setting process, and that there was an adequate causal connection between the misconduct and Rambus’s achievement of monopoly power in four technology markets. Finding that Rambus’s conduct constituted unlawful monopolization under the standards of Section 2 of the Sherman Act, the Commission issued a cease and desist order under Section 5 of the FTC Act. On appeal, the Commission’s order was vacated by the D.C. Circuit. The Commission subsequently filed a petition for rehearing en banc, which the court denied, leading to the petition for certiorari filed with the U.S. Supreme Court today.

Chambers Asia 2009 Rankings: Best Antitrust Lawyers in Japan

Posted by D. Daniel Sokol

The Japan antitrust rankings are out for Chambers' 2009 Asia Rankings.

Band 1
Hibiya Sogo Law Office
Nagashima Ohno & Tsunematsu

Band 2
Anderson Mori & Tomotsune
Freshfields
Momo-o Matsuo & Namba
Mori Hamada & Matsumoto
Morrison & Foerster, Ito & Mitomi
Nishimura & Asahi

Band 3
Baker & McKenzie GJBJ Tokyo Aoyama Aoki Koma Law Office
Jones Day
Paul, Hastings, Janofsky & Walker

Aggregation, Antitrust, and Complex Collusion

Posted by D. Daniel Sokol

Scott Hemphill of Columbia Law School continues his patent-antitrust interface work with his article Aggregation, Antitrust, and Complex Collusion.  The value of the article is the new data set that he brings to the discussion on drug settlements.

ABSTRACT: This Article examines the “aggregation deficit” in antitrust—the pervasive lack of information, essential to choosing an optimal antitrust rule, about the frequency and costliness of anticompetitive activity. It lessens the shortfall for an important, unresolved issue in U.S. antitrust policy, patent settlements between a brand-name drug maker and its generic rival. The analysis draws upon a new dataset of 142 settlements.

Taking an aggregate approach helps to set enforcement priorities, select a substantive liability standard, and identify the proper decisionmaker. The analysis uncovers a process of evolution in the means, including a variety of complex “side deals,” by which a brand-name firm can pay a generic firm to delay entry. The analysis supports a presumption of payment where a side deal is reached contemporaneously with delayed entry, and an expanded role for agencies, to take full advantage of non-public information. The aggregate perspective also sustains a pessimistic verdict on antitrust enforcement where, as here, firms can exploit regulatory complexity to disguise collusive activity.

Advanced Course in Competition Policy - Di Tella University

Posted by D. Daniel Sokol

Universidad Torcuato Di Tella in Buenos Aires, Argentina will hold an advanced competition policy course.  Details are in the pdf linked below.

Download COMPETENCIA.pdf

An Empirical Analysis of the Competitive Effects of the Delta/Continental/Northwest Code-Share Alliance

Posted by D. Daniel Sokol

With the Delta/Northwest merger successfully behind us, now is a good time to read An Empirical Analysis of the Competitive Effects of the Delta/Continental/Northwest Code-Share Alliance by Philip G. Gayle of Kansas State University (Economics).

ABSTRACT: The U.S. Department of Transportation (DOT) expressed serious reservations before ultimately approving the Delta/Continental/Northwest code-share alliance. The DOT's main fear was that the alliance could facilitate collusion (explicit or tacit) on prices and/or service levels in the partners' overlapping markets. However, since implementation of the alliance, there has not been a formal empirical analysis of its effects on price and traffic (number of passengers) levels. The main objective of this paper is to conduct such an analysis with a particular focus on testing whether the data are consistent with collusive behavior by the three airlines. The evidence does not suggest that the alliance facilitated collusion on the partners' overlapping routes.

Chambers Asia 2009 Rankings: Best Antitrust Lawyers in China

Posted by D. Daniel Sokol

Chambers new ranking for Asia based lawyers has not one but two categories for best antitrust/competition lawyers in China-- a remarkable list given that the AML has been in place for less than a year.  Moreover, in checking the website bios of a number of practitioners on this list, a number of these practitioners seem to be law generalists in corporate/M&A rather than antitrust specialists so unlike the US or UK Chamber rankings, I would treat the Chinese rankings cautiously.

Local Chinese Firms

Band 1
Jun He Law Offices    
King & Wood    
T&D Associates

Band 2
Broad & Bright    
DeHeng Law Offices
Fangda Partners
Grandall Legal Group Haiwen & Partners
Llinks Law Office
Sinobridge PRC Lawyers
Zhong Lun Law Firm

International & Hong Kong Firms

Band 1
Baker & McKenzie Freshfields
Bruckhaus Deringer LLP
Jones Day
O'Melveny & Myers LLP

Band 2
Allen & Overy LLP
Clifford Chance LLP
Gide Loyrette Nouel
Herbert Smith
Mayer Brown JSM
Linklaters
Lovells
Sidley Austin LLP
Squire, Sanders & Dempsey L.L.P.

A SSNIP Test for Two-Sided Markets: The Case of Media

Posted by D. Daniel Sokol

Lapo Filistrucchi, Department of Economics, Tilburg University offers his thoughts on A SSNIP Test for Two-Sided Markets: The Case of Media.

ABSTRACT: I discuss the design and implementation of a SSNIP test in order to identify the relevant market in a media market. I argue that in such a two-sided market the traditional SSNIP test cannot be applied as it is usually conceived but rather should be modified in order to take into account indirect network externalities. I discuss the issues of which price the hypothetical monopolist should be thought of as raising, of whether we should look at profits changes on only one side or on both sides of the market and of which feedback among the two sides of the market we should take into account. I then derive the relevant formulas for Critical Loss Analysis. These look much uglier than in a single-sided market but in fact they are easy to calculate as they are still expressed in terms of elasticities and of current observed markups, prices and quantities. Data requirements are however higher as one needs to estimate the matrixes of the own and cross price elasticities of demand on the two-sides of the market and the matrixes of the network effects. The paper fills a gap in the economic literature, so much more as market definition in media markets is at the centre of many recent competition policy and regulation cases around the world.