Antitrust & Competition Policy Blog

Merger Action Group v. Secretary of State for Business, Enterprise and Regulatory Reform

Posted by D. Daniel Sokol

Helen Davies (Brick Court Chambers) & Richard Blakeley (Brick Court Chambers) describe Merger Action Group v. Secretary of State for Business, Enterprise and Regulatory Reform.

ABSTRACT: On December 10, 2008, the Competition Appeal Tribunal (“CAT”) handed down its judgment in Merger Action Group v Secretary of State for Business, Enterprise and Regulatory Reform [2008] CAT 36. The CAT decided: (i) that the Merger Action Group (“MAG”), an unincorporated association formed for the purposes of mounting this legal challenge and constituted of a handful of Scottish businessmen, was made up of “persons aggrieved” within the meaning of section 120(1) of the Enterprise Act 2002 (“the Act”) but (ii) that the substantive challenge to the Secretary of State’s decision not to refer the merger between Lloyds TSB Group plc (“Lloyds TSB”) and HBOS plc (“HBOS”) to the Competition Commission for investigation should fail.

The claim certainly proved to be dramatic in its execution, not least because MAG’s challenge to the Secretary of State’s decision was brought just hours before the statutory time limit was due to expire and time was undoubtedly of the essence to the prospects of the merger being successfully completed. Ultimately, however, save in two particular aspects on which we focus here, it proved to be unremarkable in its conclusion.

We first discuss the background to the merger and the claim by MAG, followed by the CAT’s substantive conclusion. We then turn to the two more interesting aspects of the CAT’s decision: that the members of MAG had standing to bring the application; and that the appropriate forum of the proceedings was Scotland.

The Role of Behavioural Economics in Consumer Protection and Competition Law

Posted by D. Daniel Sokol

The Role of Behavioural Economics in Consumer Protection and Competition Law

to be held on 3 June 2009 from 4.30 - 7.30, at UCL Law Faculty, London
accredited with 3 CPD hours by the Bar Standards Board and the Solicitors Regulation Authority

About this event:
Economists have long assumed that people are rational.  Such people know what they want and make decisions to maximize the utility from those preferences.  A new body of research from economists and psychologists investigates how people actually behave and questions the rationality hypothesis.  This new field—known as “behavioural economics”—increasingly spills over into the realm of policy.  If people make the wrong decisions because of in effect faulty wiring would they benefit from having the government fix this? That could come in the form of consumer protection policies such as giving people a reprieve from impulsive decisions to other policies such as requiring people to opt-out of certain decisions rather than opting in.  There are antitrust implications as well since in principle firms could use our faulty wiring to increase their market power.  This new field does not come without controversy.  Some question whether the results are exaggerated, whether such policies may unduly disadvantage consumers who are able to defend themselves in the market, and whether a theory in which consumer welfare is ill-defined can provide a good way to develop economic models or devise policy interventions. The Colloquium will delve into this new field, its implications, and its controversies.

Programme:

4.00	Registration
4.30	Welcome and Introduction to Behavioural Economics Professor David Evans, UCL / Jevons Professor Mark Armstrong, UCL (Economics)
	Panel discussion on the role of behavioural economics on competition and consumer protection enforcement
	Panelists: Miguel de la Mano Deputy Chief Economist, DG Comp, European Commission Amelia Fletcher Chief Economist, Office of Fair Trading  Alison Oldale Chief Economist, UK Competition Commission Eliana Garces-Tolon Member of Commissioner Cabinet, DG Sanco, European Commission Representative from the US Federal Trade Commission
	A judicial perspective:
	Judge Douglas Ginsburg US Court of Appeals for the District of Columbia Circuit Vivien Rose Chairman of the Competition Appeal Tribunal
7.30	Drinks and Canapes

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Date: Wednesday 3 June 2009
Time: 4 - 7.30pm
Accreditation: 2.5 CPD hours, Law Society and Bar Standards Board 

Venue: UCL Law Faculty, Bentham House, Endsleigh Gardens, London WC1H 0EG
nearest underground Euston Square and Euston

Accreditation: accredited with 3 CPD hours by the Bar Standards Board and the Solicitors Regulation Authority

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Queries: Please contact Lisa Penfold, Events Manager at UCL Law Faculty
email: [email protected]
phone: +44 (0)20 7679 1514 

Download a copy of the schedule for this event and a map of the venue location

Mergers, Innovation, and Productivity: Evidence from Japanese Manufacturing Firms

Posted by D. Daniel Sokol

Kaoru Hosono (Gakushuin University), Miho Takizawa (Toyo University), and Kotaro Tsuru (Research Institute of Economy, Trade and Industry) undertake a nice empirical study in Mergers, Innovation, and Productivity: Evidence from Japanese Manufacturing Firms.

ABSTRACT: We investigate the impact of merger on innovation and efficiency using a micro dataset of Japanese manufacturing firms including unlisted firms during the period of 1995-1999. We find that the acquirer's total factor productivity (TFP) decreases immediately after mergers and does not significantly recover to the pre-merger level within three years after mergers. We also find that the R&D intensity does not significantly change after mergers in spite of a significant increase in the debt-to-asset ratio. Our results suggest that the costs of business integration are large and persistent. To take into considering large integration costs, we also analyze the post-merger performance from one year after mergers, finding no significant increase in TFP or R&D intensity up to three years after mergers. Given the heterogeneity of mergers, we analyze the post-merger performance by classifying merger types. We find that the ! recovery of TFP after mergers is significant for mergers across industries or within the same business group, suggesting that a synergy effect works well and integration costs are small for those types of mergers.

Retail and Wholesale Market Power in Organic Foods

Posted by D. Daniel Sokol

Timothy J. Richards (ASU - School of Management and Agribusiness), Ram Acharya (New Mexico - Agricultural Economics), and Ignacio Molina (ASU - National Food and Agricultural Policy Project) undertake a study into Retail and Wholesale Market Power in Organic Foods.

ABSTRACT: The demand for organic fresh fruits and vegetable continues to grow at a rate far higher than the rest of the produce industry. The cost of meeting organic certification standards, however, has meant that supply has been slow to adjust. With limited supply, we hypothesize that organic suppliers enjoy more market power in bargaining over their share of the retail-production cost margin for fresh apples. We test this hypothesis using a random parameters, generalized extreme value demand model (mixed logit) combined with a structural model of retail and wholesale pricing that allows conduct to vary by product attributes (organic or non-organic) and time. We find that organic growers do indeed earn a larger share of the total margin than non-organic growers, but this vertical market power is eroding over time as market supply adjusts.

Efficiencies in Merger Analysis: Alchemy in the Age of Empiricism?

Posted by D. Daniel Sokol

Tim Greaney of Saint Louis University School of Law asks Efficiencies in Merger Analysis: Alchemy in the Age of Empiricism?

ABSTRACT: One is hard-pressed to find in law an undertaking more fraught with uncertainty than the application of the efficiencies defense in merger analysis. Generalist fact finders (judges) and politically-attuned government officials (prosecutors and regulators) are charged with two Herculean tasks: (1) predicting the outcome of organic changes in business enterprises and (2) comparing the magnitude of those changes to the equally uncertain amount of harm to future competition that the transaction will cause. Given the enormous, perhaps intractable, uncertainty of this inquiry, it is therefore paradoxical that many of the strongest advocates for strengthening the role of efficiencies analysis in merger reviews are self-described proponents of bringing a ?new empiricism? to antitrust analysis. This chapter focuses on the tensions inherent in incorporating an efficiencies defense (or evaluating efficiencies as part of the appraisal of mergers) and maintaining the rigour and impartiality promised by proponents of the ?empirical? approach. This argument should not be misconstrued as a brief for abandoning the efficiencies inquiry altogether. Rather, it is, first, an appeal for candour (and humility) by those undertaking the inquiry; and second, it is a brief for constraining discretion by imposing more clearly delineated presumptive rules of law on judges and insisting on greater transparency by agencies in deciding whether to challenge mergers.

Market Concentration and Business Survival in Static v Dynamic Industries

Posted by D. Daniel Sokol

Andrew Burke (Cranfield School of Management) and Aoife Hanley (Kiel Institute for the World Economy) have an interesting study on Market Concentration and Business Survival in Static v Dynamic Industries.

ABSTRACT: We propose that the effect of market concentration on firm survival is different according to whether an industry is static (low entry and exit) or dynamic. In our empirical analysis we find support for this hypothesis. Industry concentration rates reduce the survival of new plants but only in markets marked by low entry and exit rates. Specifically, a 10 percent increase in the 5-firm concentration ratio in a dynamic market raises the survival rate of new ventures by approximately 2 percent. Our results have implications for the antitrust/competition law indicating less need for regulation of dominant firms in dynamic industries characterized by high entry and exit rates. We use a unique dataset comprising the population of new ventures that enter the UK market in 1998

Influence of integration of Czech Republic into EU on form and protection of economic competition

Posted by D. Daniel Sokol

Pavlína Pellešová (University of Silesia-School of Business Administration) discusses the Influence of integration of Czech Republic into EU on form and protection of economic competition.

ABSTRACT: The article is focused on area of economic competition. The basic pre-requisite of economic competition is assuring of freedom of entrepreneurship, freedom of partners choice, possibility to enter in and secede from branches, functional value system which ensures transparency of market and informed ness of subjects. Policy of protection of economic competition is actively executed policy which contributes to maintenance of competitive environment, which eliminates obstacles that weaken competition. Within the frame of EU it is a coordinated policy. In Czech Republic economic competition is modified by economic competition law which is asserted by Board of protection of economic competition as central administrative authority. Authoress adverts to problems connected with protection of economic competition, e.g. in connection with verification of fusions, unfair competition, exploitation of dominating position in the market.

Supermarket Competition through Price Promotions: A Cross Category Analysis

Posted by D. Daniel Sokol

Richard James Volpe (UC Davis Ag Econ) examines Supermarket Competition through Price Promotions: A Cross Category Analysis.

ABSTRACT: This study takes an important first step at quantifying the nature of competition between major supermarket chains through price promotions. Using data that covers virtually the entire product menus of supermarkets representing two major chains in 18 cities, I examine both the effect of direct competition on promotional intensity and the nature of promotional competition itself. In a counterintuitive finding, there appears to slightly less promotional activity in cities in which both chains compete directly, as compared to cities in which only one chain operates. Moreover, most promotional activity tends to be retaliatory, rather than accommodating, in nature.This study takes an important first step at quantifying the nature of competition between major supermarket chains through price promotions. Using data that covers virtually the entire product menus of supermarkets representing two major chains in 18 cities, I examine both the effect of direct competition on promotional intensity and the nature of promotional competition itself. In a counterintuitive finding, there appears to slightly less promotional activity in cities in which both chains compete directly, as compared to cities in which only one chain operates. Moreover, most promotional activity tends to be retaliatory, rather than accommodating, in nature.

Merger Action Group v. Secretary of State for BERR: External Control of the Scottish Economy, Merger Control and the Scottish 'Ring-fence': the LloydsTSB/HBOS Merger

Posted by D. Daniel Sokol

Barry Rodger (University of Strathclyde Law School) has been doing some very interesting empirical work on private rights of action in the UK.  In a departure from that work, he takes on the issue of merger control and nationalism in the UK (think Braveheart but in an antitrust context) in Merger Action Group v. Secretary of State for BERR: External Control of the Scottish Economy, Merger Control and the Scottish 'Ring-fence': the LloydsTSB/HBOS Merger.

The recent merger between Lloyds/TSB and HBOS has again raised concerns regarding the increase in external control of Scottish companies and also demonstrates many facets of the merger control system in the United Kingdom which was revised by the Enterprise Act 2002. The legal context for consideration of the merger is the challenge to the merger approval process by a number of interested third parties based in Scotland, grouped together as the Merger Action Group, (“MAG”) before the Competition Appeal Tribunal (“CAT”).

However, this brief article will focus more on the economic and legal context in which the challenge arose rather than the outcome of the review proceedings, providing a particularly personal view of the merger and its potential impact on the Scottish economy.

Hydrogen Peroxide: The Crest of the Wave

Posted by D. Daniel Sokol

Kenneth Ewing (Steptoe & Johnson) explains antitrust class actions in Hydrogen Peroxide: The Crest of the Wave.

ABSTRACT: On January 16, 2009, the Court of Appeals for the Third Circuit issued an amended decision in In re Hydrogen Peroxide Antitrust Litigation, resoundingly confirming that it requires rigorous assessment of whether a federal court claim qualifies for treatment as a class action under Rule 23 of the Federal Rules of Civil Procedure. The decision contributes significant heft to the wave of recent appellate court decisions on this case-defining question. It addresses all the issues considered by other appellate courts in recent years and leaves no doubt that in the Third Circuit, as in a majority of others, district courts may not shy away from scrutinizing the plaintiffs’ case to determine whether the requirements of Rule 23 are met.

Hydrogen Peroxide also offers some guidance on handling the ubiquitous battle of class action experts in antitrust cases. After summarizing the majority rule as reflected in Hydrogen Peroxide, this article offers some practical observations, particularly in light of a very recent district court decision attempting to implement the majority rule in a case very similar to Hydrogen Peroxide.

R&D-hindering Collusion

Posted by D. Daniel Sokol

Emanuele Bacchiega, Luca Lambertini and Andrea Mantovani (all University of Bologna - Economics) write on R&D-hindering Collusion.

ABSTRACT: In an extended version of d'Aspremont and Jacquemin's (1988) R&D competition model we find a region where the game is a prisoner's dilemma: firms still invest in R&D but they would obtain a higher pro t by not investing at all. In a repeated version of the game, we prove that firms implicitly tend to collude and refrain from investing in R&D, thus decreasing social welfare. When this happens, inviting firms to form a joint venture appears as a remedy to the lack of innovation e fforts rather than the excess thereof.

Exclusive Dealing, Entry, and Mergers

Posted by D. Daniel Sokol

Chiara Fumagalli (Bocconi - Economics) Massimo Motta (Bologna - Economics) Thomas Roende (Copenhagen - Economics) theorize about Exclusive Dealing, Entry, and Mergers.

ABSTRACT: This paper studies a model where exclusive dealing (ED) can both promote investment and foreclose a more efficient supplier. While investment promotion is usually regarded as a pro-competitive effect of ED, our paper shows that it may be the very reason why a contract that forecloses a more efficient supplier is signed. Absent the effect on investment, the contract would not be signed and foreclosure would not be a concern. For this reason, considering potential foreclosure and investment promotion in isolation and then summing them up may not be a suitable approach to assess the net effect of ED. The paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defence for ED.

Do prices fall faster when Wal-Mart is around? The effect of competition and reputation on cost pass-through and price adjustment

Posted by D. Daniel Sokol

M. Andrea Martens (Illinois - Agriculture and Consumer Economics) asks, Do prices fall faster when Wal-Mart is around? The effect of competition and reputation on cost pass-through and price adjustment.

ABSTRACT: This study analyzes Wal-Mart’s pricing practices and its influence on competitors’ input cost transmission. Previous attempts to analyze Wal-Mart’s pricing strategy in the United States have been limited by the company’s refusal to provide scanner data to third party research firms such as AC Nielsen. This is the first study to observe Wal-Mart’s prices over an extended period of time. Using weekly-store level price data between 2001 and 2006 that government officials collected in 12 Mexican cities, I find that Wal-Mart adjusts its prices 1/3-3 times slower to wholesale price increases than other retailers and responds 5-7 times faster to wholesale price decreases than its competitors. This evidence is robust to the comparison of Wal-Mart to other hypermarkets that offer “every day low prices” and to potential endogeneity of Wal-Mart’s location choices. All retailers respond asymmetrically to wholesale cost changes. However, retailers other than Wal-Mart respond twice as fast to wholesale price increases than to decreases, while Wal-Mart behaves in the opposite way. I find no evidence that proximity to a Wal-Mart supercenter or the level of competition affects the speed of price adjustment of retailers.

Toward Judicial Realism: The Evolution of Rule 23

Posted by D. Daniel Sokol

Katherine Funk (Sonnenschein Nath & Rosenthal LLP) describes Toward Judicial Realism: The Evolution of Rule 23.

ABSTRACT: The Rule 23 analysis is currently undergoing what can only be described as a seismic jurisprudential shift. A series of recent cases and recent amendments to Rule 23 auger a much more difficult road to certification for class representatives. Although it was always clear that class plaintiffs had to convince the trial court that the requirements of Rule 23 were met, there was little guidance on the proper standard of proof.

Eschewing a formulaic rubber-stamping of plaintiffs claims to meeting the Rule 23 requirements, courts now are likely to delve into merits evidence, as necessary, and to apply a preponderance of the evidence test to all of the Rule 23 factors. Only plaintiffs who put forth evidence that "more likely than not" establishes each fact necessary to meet the requirements of Rule 23 will have their class certified. This articulation of the how trial judges should apply Rule 23 and the weight and degree of inquiry into Rule 23 factors seems consistent with the purpose of the class action mechanism: it provides a way in which to adjudicate claims that have a certain degree of sameness and commonality. To the extent those factors are not present, the class action mechanism should not be used.

Searching for the Concentration-Price Effect in the German Movie Theater Industry

Posted by D. Daniel Sokol

Enrico Böhme (Econ - Frankfurt Goethe University) and Christopher Müller (Econ - Frankfurt Goethe University) investigate a relationship between concentration and prices in Searching for the Concentration-Price Effect in the German Movie Theater Industry

ABSTRACT: This paper investigates whether a price-concentration relationship can be found on local cinema markets in Germany. First, we test a model of monopolistic pricing using a new set of German micro data and find no significant difference in admission prices on monopoly and oligopoly markets. In a next step, we test whether this can be explained by the existence of local monopolies, but find no hint of that. Implicit or explicit collusion among cinema operators might explain our observations.

Oligopsony Power: Evidence from the U.S. Beef Packing Industry

Posted by D. Daniel Sokol

Xiaowei Cai (Cal Poly - Agribusiness), Kyle W. Stiegert (Wisconsin - Agricultural and Applied Economics), and Stephen R. Koontz (Illinois - Agricultural and Resource Economics) provide Oligopsony Power: Evidence from the U.S. Beef Packing Industry.

ABSTRACT: Based on Green and Porter's (GP) noncooperative game theoretic model, oligopsonists are hypothesized to follow a discontinuous pricing strategy in equilibrium. The model allows for low procurement prices during cooperative phases and high procurement prices (i.e. aggressive purchasing) during noncooperative phases. In this paper, the GP model is applied to the U.S. beef packing industry. Anecdotal evidence of beef packer margins and relevant processing costs suggest part of the margin variability could be attributed breakdowns and returns to cooperative phases. To operationalize the GP framework, we applied Hamilton's regime switching model assuming first order Markov process to test for the cooperative/noncooperative behavior of beef packers in three main fed cattle markets in the central United States and the whole U.S. market. We found that the evidence of cooperative/noncooperative conduct among the beef packers is present in all the markets examined, but the conduct varies across markets.

Rarely Tried, and . . . Rarely Successful': Theoretically Impossible Price Predation Among the Airlines

Posted by D. Daniel Sokol

Chris Sagers, Cleveland State University - Cleveland-Marshall College of Law, analyzes Rarely Tried, and . . . Rarely Successful': Theoretically Impossible Price Predation Among the Airlines.

ABSTRACT: Two large bodies of literature bearing on the competitive health of the deregulated airlines are in sharp conflict: (1) the volumes of judicial and academic output to the effect that the phenomenon of predatory pricing is, as a practical matter, impossible, and (2) the similarly massive body of industry-specific theory and empirical evidence that predation not only occurs in airline markets, but has been a key tool to preserve market power held by the surviving legacy carriers. This paper seeks to establish from the latter that the former is a poor basis for policy, especially if, as the paper argues, there is nothing really so special about airline markets as to make predation uniquely likely there. The paper therefore offers a basically casual but essential empiricism to the largely theoretical predation debate. The paper also takes the opportunity to reflect on the deeper philosophical role of generalization in antitrust.

The ECJ Has Spoken: Where Do We Stand with Standard of Proof in Merger Control?

Posted by D. Daniel Sokol

Pal Szilagyi, Competition Law Research Centre, Hungary explains The ECJ Has Spoken: Where Do We Stand with Standard of Proof in Merger Control?

ABSTRACT: Comments on the European Court of Justice (ECJ) ruling in Bertelsmann AG v Independent Music Publishers & Labels Association (Impala) (C-413/06 P), focusing on whether the same standard of proof applies in merger clearing decisions and in merger prohibition decisions under Regulation 139/2004 (Merger Regulation) art.2.

Let's Abolish Telecommunications Law and Rely on Competition Law and Authorities

Posted by D. Daniel Sokol

Antonios G. Broumas, University of Athens, suggests Let's Abolish Telecommunications Law and Rely on Competition Law and Authorities.  We have not had enough natural experiments on this but the one that I am familiar with, New Zealand, did not work out so well.

ABSTRACT: The model, which evolved in practice as the most appropriate for the regulation of the electronic communications sector, is based on the combination of sector specific regulation and competition law, put into effect by entities independent of states or market players. As the market is evolving towards a state of effective competition, concerns are raised over whether sector-specific regulation is still necessary and whether general competition law could guarantee effective regulation of its own accord. This paper questions the capacity of generic competition law to efficiently regulate the electronic communications sector and concludes instead in favour of the continuance of sector-specific regulation, oriented towards competition law principles, and independent (tele)communications agencies.

Exceptional Approval of Major Mergers: London and Brussels Compared

Posted by D. Daniel Sokol

Ian Forrester (White & Case) & Stefan Mahoney (White & Case) offer their thoughts on Exceptional Approval of Major Mergers: London and Brussels Compared.

ABSTRACT: This note records a short, urgent, highly-publicised attempt by a group of concerned citizens, the Merger Action Group (“MAG”), to challenge a rare governmental decision not to expose a government-favoured merger to the scrutiny of the otherwise applicable competition rules. The initiative was unsuccessful in appealing to the UK Competition Appeal Tribunal, which found, heavily against the applicants, that there had been no legal impropriety in the changing of the law to facilitate the transaction, or in the actions by the responsible minister when exercising his freshly-minted powers. We contrast the speed, rigour and efficiency which the CAT deployed with the norms prevailing in Brussels.