Antitrust & Competition Policy Blog

Chile Uses New Leniency Provision for the First Time

Posted by D. Daniel Sokol

Chile has just made use of its leniency program for the first time.  You read the entire document (in Spanish) below.

Download REQUERIMIENTO_con_delación_compensada-002-2010[1]

2003-2010: Brazil’s Anti-Cartel Effort—What’s Next?

Posted by D. Daniel Sokol

Ana Paula Martinez, SDE asks 2003-2010: Brazil’s Anti-Cartel Effort—What’s Next?

ABSTRACT: According to the OECD 2010 Competition Law & Policy in Brazil-A Peer Review, "Brazil's anti-cartel programme is now widely respected in Brazil and abroad" and "In a few short years Brazil has developed a programme for criminally prosecuting cartels that places it as one of the most active of all countries in this area." Similarly, the 2008 and 2009 Rating Enforcement published by the Global Competition Review states, respectively, that "Brazil has the fastest-growing cartel enforcers in the world" and that "There were some notable achievements in the SDE's cartel busting programme in 2009, in terms of both results and procedure." Along the same lines, Thomas O. Barnett, while Assistant Attorney General of the U.S. Department of Justice, Antitrust Division, acknowledged "the great progress achieved on this front in Brazil. How did Brazil get there? To better answer this question it is important to look not only at the current situation but also back a few decades.

Welcome AntitrustConnect Blog

Posted by D. Daniel Sokol

Wolrers Kluwer/Aspen has brought out its big guns -- its treatise writers -- to form a new antitrust blog, the AntitrustConnect Blog.

European Competition Law & Control of Energy Market Restructuring

Posted by D. Daniel Sokol

Michael D. Diathesopoulos, University of Cambridge - Faculty of Law, University of Glasgow - School of Law, University of Leicester - Faculty of Law, Lancaster University - Law School explores European Competition Law & Control of Energy Market Restructuring.

ABSTRACT: This paper examines the controlling role of European competition law in the energy market restructuring in EU after the gradual liberalisation process of previous years and defines the application of European competition law to this framework of restructuring. The particular focus of this paper lies on the steps taken mainly by EC Commission, in order to control the concentrations in energy market, which derived from the gradual involvement of the private sector in the market and the lift of barriers in energy market, while we highlight the major points concerning competition regulation, which are related to the effort for the establishment of a European single energy market. Control pertains mainly to the concentrations implemented on a community level but also on a member state level. Examined specifically are the community and member states control powers and interventions. In the first case the European Commission has exclusive power and in the second, the competent authorities with the support of the national Competition Commission and the national Regulatory Authority. We frequently refer to european case law and specific Commission's Decisions.

We note that this paper constitutes a part of a broader research paper on the interaction between European Competition Law and Energy Market Regulation.

 

About Cartel Overcharges: Kroes is Correct

Posted by D. Daniel Sokol

John M. Connor, Purdue University - Applied Econ suggests that About Cartel Overcharges: Kroes is Correct.

ABSTRACT: An article by Ehmer and Rosati (ER) in expresses dissatisfaction with a view expressed in a speech by Commissioner Neelie Kroes. As a justification for the high cartel fines imposed on cartels during her administration, she contends that most economic research indicates that the average cartel overcharge is likely to be 20% to 25%. This article defends Kroes’ assertion about the typicality of such overcharges. I argue in some detail that ER have it wrong. The overwhelming empirical evidence on cartel overcharges is reliable, scientific, and biased downward.

Merger Performance and Efficiencies in Horizontal Merger Policy in the US and the EU

Posted by D. Daniel Sokol

S. P. Kamerbeek, University of Utrecht - Faculty of Law explains Merger Performance and Efficiencies in Horizontal Merger Policy in the US and the EU.

ABSTRACT: In current horizontal merger policy in the US and the EU an explicit efficiency defense is allowed. On both sides of the Atlantic mergers are unconditionally approved if internal efficiencies are sufficient to reverse the mergers’ potential to harm consumers in the relevant market. Current merger policy is implicitly based on the assumption that rational managers will only propose privately profitable mergers. In this thesis I will show that the empirical evidence on merger performance suggests that this assumption can’t be sustained. Managers do propose uneconomic mergers, motivated by non-wealth maximizing behavior. To tackle this problem I argue that efficiencies should not only be used as an efficiency defense, but efficiencies should work both ways. To avoid type I and type II errors the competition authorities in the US and the EU should undertake a sequential efficiency test in their assessment of specific mergers.

Innovation, Competition and Incentives for R&D

Posted by D. Daniel Sokol

Martin Woerter, ETH Zurich, Swiss Economic Institute (KOF), Christian Rammer, Centre for European Economic Research (ZEW) - Industrial Economics and International Management Research, and Spyros Arvanitis, Swiss Federal Institute of Technology Zurich (ETH) - Swiss Institute for Business Cycle Research (KOF) describe Innovation, Competition and Incentives for R&D.

ABSTRACT: This paper analyses the relationship between past innovation output, competition, and future innovation input in a dynamic econometric setting. We distinguish two dimensions of competition that correspond to the concepts of product substitutability and entry barriers due to fixed costs. Based on firm-level panel data for Germany and Switzerland we obtain consistent results for both countries. Innovation output in t-1 as measured by the sales share of innovative products is positively related to the degree of product obsolescence in t, and negatively to the degree of substitutability in t in both countries. Further, we find that rapid product obsolescence provides positive incentives for higher – primarily product-oriented – R&D investments in t 1, while high substitutability exerts negative incentives for future R&D investment.

The Influence of Collusion on Price Changes: New Evidence from Major Cartel Cases

Posted by D. Daniel Sokol

Korbinian von Blanckenburg, Alexander Geist, and Konstantin A. Kholodilin, German Institute for Economic Research (DIW Berlin) explain The Influence of Collusion on Price Changes: New Evidence from Major Cartel Cases.

ABSTRACT: In this paper, we compare the distribution of price changes between collusive and noncollusive periods for ten major cartels. The first moments focus on previous research. We extend the discussion to the third (skewness) and fourth (kurtosis) moments. However, none of the above descriptive statistics can be considered as a robust test allowing a differentiation between competition and cartel. Therefore, we implement the Kolmogorov-Smirnov test. According to our results, 8 out of 10 cartels were successful in controlling the market price for a number of years. The proposed methodology may be used for antitrust screening and regulatory purposes.

Comparison of Merger Impact on the Profitability Measures of EU Domestic & Cross Border Bank Acquirers

Posted by D. Daniel Sokol

Matthias Nnadi, Coventry University and Sailesh Tanna, Coventry University - Department of Economics have anj empirical paper on Comparison of Merger Impact on the Profitability Measures of EU Domestic & Cross Border Bank Acquirers.

ABSTRACT: The study compares the M&A effect on the profitability measures of 63 completed EU banks. The cumulative total standardised abnormal return (CTSAR), which is a proxy for M&A and a long window of 60 days, were used to capture the impact and trends in the profitability of both acquirers. The profitability measures were hierarchically regressed against the CTSAR of the cross border and domestic banks acquirers. We found that M&A significantly reduces the profitability of the cross border acquirers but does not have such significant impact on the financial performance of the domestic acquirers. However, increase in the profitability of both acquirers reduces the cost efficiency (CER) of the banks and increases their exposure to risky lending.

FTC Funded For Fiscal Year 2011

Posted by D. Daniel Sokol

BNA reports that the "Senate Appropriations Committee's Financial Services and General Government Subcommittee on July 27 approved a FY 2011 spending bill that includes $314 million for the Federal Trade Commission."

Supermarket and Gasoline: An Empirical Study of Bundled Discount

Posted by D. Daniel Sokol

Zhongmin Wang, Northeastern University has posted Supermarket and Gasoline: An Empirical Study of Bundled Discount.

ABSTRACT: Bundled discount is a widely used business practice and has been the key issue of prominent antitrust cases, yet the market effects of bundled discounts are rarely the subject of empirical studies. This paper studies the competitive effects of bundled discounts in an increasingly important setting: supermarket and gasoline retailing. Many supermarkets in the U.S. and other countries offer a grocery-gasoline bundled discount whereby supermarket customers receive a gasoline price discount if they purchase a certain amount of supermarket groceries. In this paper, we are able to observe the features and timing of the grocery-gasoline bundled discounts in an Australian market, track the pricing behaviour of the bundling firms and their competitors, and measure the competitiveness of the market before, during, and after the bundled discounts take effect. Our evidence suggests that grocery-gasoline bundled discounts are used as an advertising strategy, not as an exclusionary device. The results support the idea that bundled discount should not be assessed by the logic of single-product predatory pricing. The results also have implications on sales-below-cost laws.

The Effect of Competition on Trade Patterns: Evidence from the Collapse of International Cartels

Posted by D. Daniel Sokol

Margaret C. Levenstein, University of Michigan at Ann Arbor - Survey Research Center, University of Michigan - Ross School of Business, Jagadeesh Sivadasan, University of Michigan - Stephen M. Ross School of Business, and Valerie Y. Suslow, University of Michigan - Stephen M. Ross School of Business discuss The Effect of Competition on Trade Patterns: Evidence from the Collapse of International Cartels.

ABSTRACT: How do changes in competitive intensity affect trade patterns? In this paper, we exploit a quasi-natural experiment associated with increased anti-trust enforcement activity over the last two decades. A large number of international markets underwent a change in competitive intensity as they shifted from explicit collusion to oligopolistic competition. We draw on models of collusive arrangements in spatially separated markets to generate testable predictions of the effects of collusion on price, trade patterns and concentration. One set of models (Pinto 1986, Fung 1991, building on Brander and Krugman 1983) suggests that colluding firms in commodity markets are likely to specialize geographically, while competing oligopolists are more likely to invade each others’ markets. More recent models (Baake and Normann 2002, Bond and Syropoulos 2008) suggest that efficient cartel arrangements may necessitate market-sharing and cross-hauling of goods, as these entail lower defection profits. We analyze detailed trade data linked to descriptive information from ten international cartels to test these predictions. Consistent with both sets of models, we confirm significant declines in prices following the breakup of each of the ten cartels. Contrary to conventional wisdom, and consistent with the more recent oligopoly trade models, we find no significant change in spatial patterns of trade; there is no significant change in the effect of distance on trade. Neither do we find evidence of significant changes in concentration or rearrangement of market shares.

A Theory of Quality Competition in Newspaper Joint Operating Agreements

Posted by D. Daniel Sokol

Aaron Cranes and Charles J. Romeo, both Economic Analysis Group US Department of Justice Antitrust Division, provide A Theory of Quality Competition in Newspaper Joint Operating Agreements.

ABSTRACT: Newspaper Joint Operating Agreements (JOAs) are long term, inflexible contracts between metropolitan daily newspapers in the same market. These contracts maintain two editorial voices while combining all business operations of the two competitors in order to capture many of the scale economies that have put an end to newspaper competition in most markets. The question we address is what, if anything, drives newspapers to compete editorially once a JOA is formed? With contract terms that run in the 10s of years, one might reasonably question whether incentives exist to prod the partners to continue rigorous competition. Our study of JOA contracts indicates that the history of JOAs is filled with instances of unprogrammed renegotiations, and that how the partners fare in these negotiations appears to be driven by each party’s relative success in the market since the agreement was initiated. In essence, forming a JOA does not resolve the issue of which newspaper will remain in the marketplace once the JOA terminates. Editorial competition throughout the life of the JOA resolves this issue.

Four Questionable Rationales for the Patent Misuse Doctrine

Posted by D. Daniel Sokol

Tom Cotter, University of Minnesota Law School has posted Four Questionable Rationales for the Patent Misuse Doctrine.

ABSTRACT: When a patent infringement defendant succeeds in proving that the patent owner has misused its patent, the patent is rendered unenforceable unless and until the misuse is purged. Case law has never clearly articulated precise criteria for determining the boundaries of the misuse doctrine, however. Although the misuse doctrine overlaps to some extent with substantive antitrust law, for example, under current law not every instance of misuse is necessarily an antitrust violation, and not every patent-related antitrust violation necessarily constitutes misuse. In this paper, I identify four possible justifications for the patent misuse doctrine that, in theory, could provide guidance in identifying conduct that constitutes patent misuse. These four rationales include: (1) the optimal deterrence of substantive antitrust violations (the “optimal antitrust deterrence” rationale); (2) a broader social welfare maximization rationale (the “social welfare” rationale); (3) a narrower rationale that focuses principally on the optimal deterrence of anticompetitive conduct that lies beyond the reach of antitrust (the “beyond antitrust” rationale); and (4) a rationale that targets spurious assertions of patent rights that may not otherwise violate antitrust or unfair competition law (the “public domain” rationale). I argue that the optimal antitrust deterrence and public domain rationales provide at best only weak support for a patent misuse doctrine due to corresponding overdeterrence risks. The social welfare and beyond antitrust rationales may support a patent misuse doctrine in some discrete instances where “false negatives” risk undermining future innovation or other goals of the patent system, and the cost of “false negatives” is likely to be small; overall, however, I argue that courts should exercise caution in applying either rationale to patentee conduct that is otherwise lawful. At the end of the day, an antitrust policy that is appropriately sensitive to innovation harms, along with a more vigorous experimental use defense to infringement claims, likely would be preferable to a reinvigorated patent misuse doctrine.

Does Hospital Competition Improve Efficiency? An Analysis of the Recent Market-Based Reforms to the English NHS

Posted by D. Daniel Sokol

Zack Cooper, Stephen Gibbons, Simon Jones, and Alistair McGuire ask Does Hospital Competition Improve Efficiency? An Analysis of the Recent Market-Based Reforms to the English NHS.

ABSTRACT: This paper uses a difference-in-difference estimator to test whether the introduction of patientchoice and hospital competition in the English NHS in January 2006 has prompted hospitalsto become more efficient. Efficiency was measured using hospitals' average length of stay(LOS) for patients undergoing elective hip replacement. LOS was broken down into its twokey components: the time from a patient's admission until their surgery and the time fromtheir surgery until their discharge. Our results illustrate that hospitals exposed to competitionafter a wave of market-based reforms took steps to shorten the time patients were in thehospital prior to their surgery, which resulted in a decrease in overall LOS. We find thathospitals shortened patients' LOS without compromising patient outcomes or by operating onhealthier, wealthier or younger patients. Our results suggest that hospital competition withinmarkets with fixed prices can increase hospital efficiency. 

The Firm as Cartel Manager

Posted by D. Daniel Sokol

Herb Hovenkamp, Iowa Law, explains The Firm as Cartel Manager.

ABSTRACT: Historically, Visa and MasterCard were organized as joint ventures whose members were the card issuing financial institutions. After enduring decades of antitrust litigation, however, first MasterCard and later Visa reorganized themselves as publicly traded corporations with a unique dual class share structure under which the “insiders” (the issuing banks) relinquished their voting control over day-to-day operations, and control was left in the hands of public shareholders who presumably have no ongoing separate interest in the bank credit card business. While the Visa and MasterCard IPOs themselves may have sound efficiency explanations, the odd “inverse” dual class share structure was very likely an attempt to turn MasterCard and Visa into single entities for antitrust purposes, thus placing many of the activities attacked in previous litigation outside of the reach of §1 of the Sherman Act. That statute reaches activity only when it is the product of a “contract, combination, or conspiracy” in restraint of trade, all of which involve agreements among two or more actors. By contrast, while §2 of the Sherman Act reaches unilateral activity, it reaches only conduct that “monopolizes,” or excludes rivals from a market with anticompetitive results. This essay argues that if creating a single entity for antitrust purposes was their motive, the promoters of the Visa and MasterCard ventures failed to anticipate the logic and breadth of the Supreme Court’s American Needle decision. The Court unanimously held that the NFL is a multiplicity of actors for purposes of a challenge to a contract that combined the separate intellectual property interests of the 32 NFL football teams. Significantly, the focus of the Supreme Court’s analysis was not on who controls, but rather on who is controlled. A cartel seeks to maximize the profits of the cartel group as a whole. By contrast, individual members of the cartel seek to maximize their own individual profits, which they can do by undercutting the cartel, typically by producing more than its cartel output assignment or by charging less than the cartel price. The question of competitive harm does not depend on cartel members' individual power to make price and output decisions, but rather on the cartel manager’s ability to force its price and output decisions upon the individual members. To the extent that the MasterCard and Visa IPOs limit the conduct of separately owned banks who are able to compete with one another they should continue to be regarded as a multiplicity of actors rather than a single entity.

Asymmetric Pass-Through in U.S. Gasoline Prices

Posted by D. Daniel Sokol

Matthew Chesnes, FTC examines Asymmetric Pass-Through in U.S. Gasoline Prices.

ABSTRACT: This paper presents new evidence of asymmetric pass-through, the notion that upward cost shocks are passed through faster than downward cost shocks, in U.S. gasoline prices. Much of the extant literature comes to seemingly contradictory conclusions about the existence of an asymmetry, though the differences may be due to different aggregation (both over time and geographic markets) and the use of different price series including crude oil, wholesale, and retail gasoline prices. I utilize a large and detailed dataset to determine where evidence of a pass-through asymmetry exists, and how it depends on the aggregation and price series chosen by the researcher.

Using the standard error correction model, I find evidence of pass-through asymmetry in the response of daily and weekly retail prices to wholesale rack price changes, though the magnitude varies by geographic market. On average, retail prices rise more than four times as fast as they fall. Branded gasoline features significantly more asymmetry with respect to rack prices compared with unbranded gasoline. Over time, nation-wide asymmetry varies significantly from year to year peaking in 2005. Midwest cities, like Louisville and Minneapolis, feature more asymmetry compared with other parts of the country. F-tests broadly confirm the results and illustrate that data selection and aggregation, as well as model specification, can have important implications on the findings of asymmetric pass-through.

EU Investigating IBM

Posted by D. Daniel Sokol

The WSJ has a story on the EU antitrust inverstigation of IBM.  They note that there has been a tech focus to EU investigations.  They list a number of important tech companies but omit mention in the chart of EU investigations against other tech companies, such as Qualcomm and Apple.

An Economic Approach to Abuse of Dominance

Posted by D. Daniel Sokol

Federico Etro (University of Milan) and Ioannis Kokkoris (University of Reading) offer An Economic Approach to Abuse of Dominance.

ABSTRACT: The European debate on abuse of dominance issues in antitrust has been recently characterized by an emphasis on purely economic aspects, and by an emerging consensus on the merits of taking an “effects-based approach” aimed at the maximization of consumer welfare and the protection of competition. The European Commission has recently issued a Guidance Paper on exclusionary abuses which purports to move EU enforcement on abuse of dominance in this direction. In spite of these developments, we are still far from reaching any consensus on the best way to apply competition policy to specific issues such as predatory pricing, bundling, vertical restraints, exclusive dealing and so on. We analyze the genesis of the European approach to antitrust and discuss the leading economic theories on competition policy and abuse of dominance, as developed by the Chicago School, the post-Chicago approach and the endogenous market stru! ctures approach. Finally, we use these economic foundations to analyze the EU approach to abuse of dominance, we examine the Guidance Paper, we provide a comparison with the American approach, and we discuss the implications of some recent important cases.

Does Product Market Competition Lead Firms to Decentralize?

Posted by D. Daniel Sokol

Nick Bloom (Stanford Econ), Raffaella Sadun (Harvard Business School), and John Van Reenen (LSE Econ) ask Does Product Market Competition Lead Firms to Decentralize?

ABSTRACT: There is a widespread sense that over the last two decades firms have been decentralizingdecisions to employees further down the managerial hierarchy. Economists have developed arange of theories to account for delegation, but there is less empirical evidence, especiallyacross countries. This has limited the ability to understand the phenomenon ofdecentralization. To address the empirical lacuna we have developed a research program tomeasure the internal organization of firms - including their decentralization decisions - acrossa large range of industries and countries. In this paper we investigate whether greater productmarket competition increases decentralization. For example, tougher competition may makelocal manager's information more valuable, as delays to decisions become more costly. Sinceglobalization and liberalization have increased the competitiveness of product markets, oneexplanation for the trend towards d! ecentralization could be increased competition. Of coursethere are a range of other factors that may also be at play, including human capital,information and communication technology, culture and industrial composition. To tacklethese issues we collected detailed information on the internal organization of firms acrossnations. The few datasets that exist are either from a single industry or (at best) across manyfirms in a single country. We analyze data on almost 4,000 firms across twelve countries in Europe, North America and Asia. We find that competition does indeed seem to foster greaterdecentralization.