Monday, October 18, 2010

Six Principles for Limiting Government-Facilitated Restraints on Competition

Posted by D. Daniel Sokol

Michal Gal, University of Haifa - Faculty of Law; New York University and Inbal Faibish, University of Haifa - Faculty of Law have posted the interesting Six Principles for Limiting Government-Facilitated Restraints on Competition.

ABSTRACT: Regulation is an important tool to deal with market imperfections. Regulation might, however, sometimes go beyond what is socially justified and create undue restraints on competition. The problem of social engineering is thus to devise a system that will ensure that the optimum combination of competition and regulation is achieved. This article suggests harnessing the comparative advantages of competition authorities to this task. It proposes six general principles that are aimed at creating a system of "checks and balances" which maintains adequate safeguards to ensure that competition will be limited only where socially warranted. Whereas much has been written about where to draw the line between regulation and competition, the question of what institutional role competition authorities and courts can play to ensure that these boundaries are not overstepped has generally received little attention. This paper attempts to fill this gap. The first part of the article provides a basis for the discussion by surveying possible justifications and motivations for government-facilitated or imposed restrictions on competition. A dichotomy between two main types of restraints is suggested, based on their effects on social welfare. This dichotomy then serves as the basis for the discussion in the second part of the article, which focuses on the tools available to competition authorities and courts to combat welfare-reducing restraints on competition. Six general principles to achieve this goal are proposed. Some of these principles suggest that competition authorities should be allowed to venture outside their traditional confines and build upon their institutional comparative advantages in order to ensure that regulation increases social welfare. The third part of the article analyzes the existing EU law to evaluate whether, and to what extent, the proposed principles currently apply. It suggests several changes to the current system that have the potential to limit the existence of welfare-reducing restraints.

October 18, 2010 | Permalink | Comments (0) | TrackBack (0)

General Court upholds Commission's Digital Decoders Decision

Posted by D. Daniel Sokol

Alexander Winterstein (DG Comp) discusses how the General Court upholds Commission's Digital Decoders Decision.

ABSTRACT: Article 107(1) TFEU provides that for State aid to be present the Member State's intervention must, inter alia, confer a selective economic advantage on the recipient which distorts or threatens to distort competition. Such interventions are incompatible with the internal market unless they are deemed compatible pursuant to Article 107(2) TFEU or declared to be so by the Commission pursuant to Article 107(3) TFEU.

When assessing compatibility, the Commission essentially puts the positive and the negative effects of the measure into balance. On the positive side, the Commission will check whether the measure adequately and proportionally addresses an objective of common interest—which in most cases will consist in tackling a market failure. On the negative side, it will in particular assess possible distortions of competition. If the Commission, after having conducted such a balancing exercise, finds a State aid measure to be incompatible, the Member State must not put it into effect. If it was already implemented, the Commission will demand the Member State concerned to recover the aid from the recipient.

With regard to the issues at stake in the present case, that is the digitisation of broadcasting, the Commission's assessment of State aid measures aimed at facilitating the process of digital switchover relies on a number of elements set out in its pertinent policy documents. In this area, the concept of ‘technological neutrality’ is of critical importance: State interventions must not favour the use of a particular digital transmission platform—for example terrestrial TV—vis-à-vis others like satellite or cable.

October 18, 2010 | Permalink | Comments (0) | TrackBack (0)

Bankruptcy and Product-Market Competition: Evidence from the Airline Industry

Posted by D. Daniel Sokol

Federico Cilibertoy University of Virginia and Carola Schenonez University of Virginia have a new paper on Bankruptcy and Product-Market Competition: Evidence from the Airline Industry.

ABSTRACT: We investigate the effects of Chapter 11 bankruptcy filings on product market competition using data from the US airline industry. We find that bankrupt airlines permanently downsize their national route structure, their airport-specific networks, and their route-specific flight frequency and capacity. We also find that bankrupt airlines lower their route-specific prices while under bankruptcy protection, and increase them after emerging. We do not find robust evidence of significant changes by the bankrupt airline's competitors along any of the dimensions above. Overall, our results are consistent with the hypothesis that bankruptcy is the result of a war of attrition over capacity and network cutbacks.

October 18, 2010 | Permalink | Comments (0) | TrackBack (0)

Spatial Competition and Cooperation Effects on European Airports' Efficiency

Posted by D. Daniel Sokol

Pavlyuk Dmitry, Transport and Telecommunication Institute explains Spatial Competition and Cooperation Effects on European Airports' Efficiency.

ABSTRACT: This paper is devoted to statistical analysis of spatial competition and cooperation between European airports. We propose a new multi-tier modification of spatial models, which allow estimating of spatial influence varying with the distance. Competition and cooperation effects don't diminish steadily with moving from a given airport, their structure is more complex. The suggested model is based on a set of distance tiers, with different possible effects inside each tier. We apply the proposed modification to the standard spatial stochastic frontier model and use it to estimation of competition and cooperation effects for European airport and airport's efficiency levels. We identify three tiers of spatial influence with different completion-cooperation ratio in each one. In the first, closest to an airport, tier we note significant advantage of cooperation effects over competition ones. In the second, more distant, tier ! we discover the opposite situation – significant advantage of completion effects. The last tier's airports doesn't influence significantly. In this paper we also consider some other possible applications of the proposed spatial multi-tier model.

October 18, 2010 | Permalink | Comments (0) | TrackBack (0)

Saturday, October 16, 2010

Legal Privilege or Legal Inconvenience? Some Reflections on the Last Judgment of the ECJ in Relation to the Akzo Case

Posted by D. Daniel Sokol

Angela Laghezza addresses Legal Privilege or Legal Inconvenience? Some Reflections on the Last Judgment of the ECJ in Relation to the Akzo Case.

ABSTRACT: This article analyzes the concept of Legal Professional Privilege ("LPP") in EU through the lenses of the Akzo case. It underlines what the recent ECJ Judgment clarified and what, instead, left the door open to further discussion. It concludes that the Court has unduly limited the scope of the LPP by refusing to extend LLP to in-house lawyers. The ECJ Judgment creates real inconvenience for in-house lawyers who, fearing the use the Commission could make of their documented advice, are prevented from freely and fully advising companies.

 

October 16, 2010 | Permalink | Comments (0) | TrackBack (0)

Federal Courts and Enforcers Diagnose Physician Practice Associations with Risk of Conspiracy Liability: Degree of Integration is Crucial to Challenges to Medical Network Price Agreements

Posted by D. Daniel Sokol

Heather Cooper (Sheppard Mullin) address Federal Courts and Enforcers Diagnose Physician Practice Associations with Risk of Conspiracy Liability: Degree of Integration is Crucial to Challenges to Medical Network Price Agreements.

ABSTRACT: Thanks to a recent federal district court decision, physicians and medical staff have more reason to think twice about price and other arrangements adopted by the practice associations and clinics to which they belong. Last Spring, the United States District Court for the Eastern District of California held that a hospital and a physicians practice association, and a hospital and the physicians that provide services to it under contract, may be sufficiently distinct separate economic actors capable of conspiring with each other under Section 1 of the Sherman Act. The court denied a motion to dismiss a complaint that alleged that a hospital and two independent physician practice associations conspired to restrain trade in violation of Section 1 of the Sherman Act by prohibiting neonatologists who did not agree to practice exclusively at the hospital or refer cases to doctors practicing exclusively neonatology at the hospital, from using the hospital's neonatal intensive care unit ("NICU").

There are few Ninth Circuit cases addressing these issues and other circuits have come to different conclusions. Federal antitrust enforcement agencies have taken the position that members of physician practice associations and networks can conspire with each other and with hospitals for antitrust purposes. In fact, the Perinatal decision is fairly consistent with the enforcers' approach to evaluating antitrust issues with clinical integration practices and arrangements.

October 16, 2010 | Permalink | Comments (0) | TrackBack (0)

Friday, October 15, 2010

Airport privatization and international competition

Posted by D. Daniel Sokol

Toshihiro Matsumura (University of Tokyo) and Noriaki Matsushima (Osaka University) address Airport privatization and international competition.

ABSTRACT: We provide a simple theoretical model to explain the mechanism wherebyprivatization of international airports can improve welfare. The model consists of a downstream (airline) duopoly with two inputs (landings at two airports) andtwo types of consumers. The airline companies compete internationally. Using thesimple international duopoly model, we show that the outcome where both airportsare privatized is always an equilibrium while that where no airport is privatized is another equilibrium only if the degree of product differentiation is large.

October 15, 2010 | Permalink | Comments (0) | TrackBack (0)

Bankruptcy and low cost carrier expansion in the airline industry

Posted by D. Daniel Sokol

Hwa Ryung Lee (University Zurich) discusses Bankruptcy and low cost carrier expansion in the airline industry.

ABSTRACT: This paper studies how financial distress affects competition and how incumbent bankruptcy affects the growth of rivals, specifically in the context of airline bankruptcies. I begin by studying whether bankrupt airlines put competitive pressures on rivals by cutting fares and maintaining or expanding capacity on the 1000 most popular domestic routes from 1998-2008. The results suggest that, although bankrupt legacy airlines reduce fares, they also reduce capacities significantly. Low-cost carrier (LCC) rivals do not match the fare cuts and expand capacities by 13-18% above trend growth. The significant capacity reductions associated with legacy airline bankruptcies create growth opportunities for LCC rivals. This indicates the existence of barriers that have limited LCCs from expanding faster and more extensively. The LCC expansion during rivals' bankruptcies is even greater when I consider the 200 most popular airports instead of the 1000 most popular routes. During legacy airlines' bankruptcy, non-LCC rivals reduce capacities on the routes affected by the bankruptcy but expand at the affected airports. A likely explanation for this result is that non-LCCs avoid 'bankruptcy' routes as more competitive pressure is expected with increasing presence of LCCs, but they pick up the gates or time slots given up by the bankrupt airlines to expand on other routes. On balance the total route capacity on the 1000 popular routes shows only a modest decrease during bankruptcy and eventually recovers, but the capacity mix changes in favor of LCCs. Overall, I find little evidence that distressed airlines toughen competition and lower industry profitability. LCC's capacity growth during legacy rivals' bankruptcy suggests the existence of market frictions in competition.

October 15, 2010 | Permalink | Comments (0) | TrackBack (0)

The AZ Judgment: A Green Light for Further Action on Pharma and IP

Posted by D. Daniel Sokol

Sean-Paul Brankin (Crowell & Moring) discusses The AZ Judgment: A Green Light for Further Action on Pharma and IP.

ABSTRACT: On July 1, 2010, the General Court issued its long awaited judgment in AstraZeneca v Commission, almost five years after AstraZeneca launched its appeal against the EUR 60 million fine imposed on it by the Commission for abuse of dominance in 2005.  The original Commission Decision was ground-breaking. It was the Commission's first abuse of dominance case in the pharmaceutical ("pharma") sector, a rare example of a case addressing the interaction between EU competition law and Intellectual Property ("IP") rights, and the types of abuse involved were novel. The decision launched the Commission on the path that eventually led to its 2009 pharmaceuticals sector inquiry; it also set the tone for a series of cases dealing with abuse of dominance in relation to the acquisition of IP rights, in particular patents, including Rambus and Qualcomm. The importance of the case is underlined by the persistent rumor that the Commission has delayed launching cases based on the results of the sector inquiry pending the outcome of the appeal. Many thought the Commission Decision would be overturned on appeal.

However, the General Court not only upheld the Commission's novel theories of abuse, it also appears to have extended their potential scope of application. And, in dismissing an appeal that challenged all aspects of the Commission Decision, the decision addresses a number of important issues, including the proper approach to market definition in the pharma sector, the scope for abuse in the context of applications for IP rights and litigation, and the circumstances in which prima facie legitimate behavior may be abusive-although it arguably leaves much scope for interpretation. This article discusses some of the issues raised in these important areas.

It should, however, be noted that the General Court's decision is itself under appeal to the European Court of Justice, so the law will remain uncertain for some time yet.

October 15, 2010 | Permalink | Comments (0) | TrackBack (0)

Thursday, October 14, 2010

The Oxford Handbook of Judaism and Economics

Posted by D. Daniel Sokol

The Oxford Handbook of Judaism and Economics

Aaron Levine
ISBN13: 9780195398625ISBN10: 0195398629 Hardback, 720 pages
Nov 2010,  Not Yet Published

Price:

$150.00 (06)

See more from the series

The interaction of Judaism and economics encompasses many different dimensions. Much of this interaction can be explored through the way in which Jewish law accommodates and even enhances commercial practice today and in past societies.

From this context, The Oxford Handbook of Judaism and Economics explores how Judaism as a religion and Jews as a people relate to the economic sphere of life in modern society as well as in the past. Bringing together an astonishingly strong group of top scholars, the volume approaches the subject from a variety of angles, providing one of the most comprehensive, well-rounded, and authoritative accounts of the intersections of Judaism and economics yet produced. Aaron Levine first offers a brief overview of the nature and development of Jewish law as a legal system, then presents essays from a variety of angles and areas of expertise. The book offers contributions on economic theory in the bible and in the Talmud; on the interaction between Jewish law, ethics, modern society, and public policy; then presents illuminating explorations of Judaism throughout economic history and the ways in which economics has influenced Jewish history.

The Oxford Handbook of Judaism and Economics at last offers an extensive and welcome resource by leading scholars and economists on the vast and delightfully complex relationship between economics and Judaism.

Table of Contents

Contributors
Prologue
Acknowledgments
Introduction
Aaron Levine

I. Economic Theory in the Bible
1. The Right to Return: The Biblical Law of Theft
Eliakim Katz and Jacob Rosenberg
2 . Eliezer the Matchmaker: Ethical Considerations and Modern
Negotiation Theory
Aaron Levine
3. Land Concentration, Efficiency, Slavery, and the Jubilee
Jacob Rosenberg and Avi Weiss

II. Economic Theory in the Talmud
4 . Risk and Incentives in the Iska Contract
Jeffrey L. Callen
5. Externalities and Public Goods in the Talmud
Ephraim Kleiman
6 . An Extended Talmudic Search Model
Yehoshua Liebermann
7. Optimal Precautions and the Law of Fire Damages
Jacob Rosenberg
8. Valuation in Jewish Law
Keith Sharfman
9. Could What You Don't Know Hurt You? Information Asymmetry
in Land Markets in Late Antiquity
P.V. (Meylekh) Viswanath and Michael Szenberg

III. Jewish Law, Ethics, and the Modern Society
10. Hetter Iska, the Permissible Venture: A Device to Avoid the
Prohibition Against Interest-Bearing Loans
J. David Bleich
11. Ethical Demands on Creditors in Jewish Tradition
Yoel Domb
12. The Jewish Prohibition of Interest: Themes, Scopes, and
Contemporary Applications
Daniel Z. Feldman
13. Interloping Behavior in the Marketplace in Jewish Law
Howard Jachter
14. Principles of Ethical and Communal Investment in Judaism:
A Jewish Law Approach
Asher Meir
15. The Art of Moral Criticism: Rebuke in the Jewish Tradition
and Beyond
Moses L. Pava
16. "Know Before Whom You Stand": Trust, the Marketplace,
and Judaism
Jonas Prager
17. Payment for Organ Donation in Jewish Law
Fred Rosner and Edward Reichman
18. The Theory of "Efficient Breach": A Jewish Law Perspective
Ronald Warburg

IV. Economic Public Policy and Jewish Law
19. Public and Private International Law From the Perspective of Jewish
Law
Michael J. Broyde
20. Jewish Environmental Ethics
Yehuda L. Klein and Jonathan Weiser
21. The Global Recession of 2007null: The Moral Factor and
Jewish Law
Aaron Levine
22. The Employee Free Choice Act, Unions, and Unionizing in
Jewish Law
Dani Rapp
23. Rabbinic Responses to Rapid Inflation in Israel, 1973--1985
Daniel Schiffman
24. Jewish Ethics, the State, and Economic Freedom
Meir Tamari

V. Comparative Law Studies Relating to Economic Issues
25. Economic Substance and the Laws of Interest: A Comparison
of Jewish and U.S. Federal Tax Law
Adam Chodorow
26. Transfer of Ownership in E-Commerce Transactions from the
Perspective of Jewish Law: In Light of Israeli and American Law
Ron S. Kleinman and Amal Jabareen
27. The Jewish Guarantor and Secular Law: Stumbling Blocks and
Their Removal
Roger Lister

VI. Judaism and Economic History
28. Babylonian Jews at the Intersection of the Iranian Economy
and Sasanian law
Yaakov Elman
29. Coins and Money in Jewish Law and Literature: A Basic Introduction
and Selective Survey
Laurence J. Rabinovich
30. Economics and Law as Reflected in Hebrew Contracts
Yosef Rivlin
31. Talmudic Monetary Theory: Currency in Rabbinic Halakhah
Lawrence H. Schiffman

VII. The Economics of Judaism
32. The Economic Progress of American Jewry: From Eighteenth-
Century Merchants to Twenty-First-Century Professionals
Barry R. Chiswick
33. How Economics Helped Shape American Judaism
Carmel Ullman Chiswick

October 14, 2010 | Permalink | Comments (0) | TrackBack (0)

Antitrust and Judaism - Are Rabbi Searches Anti-Competitive?

Posted by D. Daniel Sokol

Barak Richman (Duke Law) is spending his sabbatical year focusing on one of the most difficult issues involving any Jewish organization - selecting a Rabbi.  He has a very interesting op-ed in the Forward that asks Rabbi Searches Are Tough, but Are They Illegal?

Luckily, we have an excellent Rabbi and probably one of the few Rabbis who holds an MBA and hence can actually read a balance sheet.  I am on the board of our synagogue.  I have probably learned more about corporate governance in this context than I have from teaching corporations, which I have done for a number of years.  To my knowledge, there are no current of former antitrust specialists who are also Rabbis. 

For those wondering about antitrust and Rabbis (after all, this is the Antitrust and Competition Policy Blog), the best antitrust related Rabbinical article is by Dennis Carlton and Avi Weiss entitled The Economics of Religion, Jewish Survival, and Jewish Attitudes Toward Competition in Torah Education. Those of you up on antitrust policy will know that Dennis and Avi are not merely impressive academics. Rather, Dennis is the former Deputy Assistant Attorney General for Economic Analysis at DOJ Antitrust and Avi is the former Chief Economist and Deputy General Director of the Israel Antitrust Authority.

Update 10/14/2010

Apparently there is an ordained Rabbi economist who has written on competition issues.  Meet Professor Aaron Levine of Yeshiva University's Economics Department.  He holds a PhD in Economics from NYU and ordained as a Rabbi at the Rabbi Jacob Joseph School.  Levine is the editor of the Oxford University Handbook on Judaism and Economics (Oxford University Press 2010).  The book comes out in November 2010.  It makes my list for the must have book for Channukah.    

 

October 14, 2010 | Permalink | Comments (1) | TrackBack (0)

The Economics of Parallel Trade – Iconoclast Views on a Dogma of EU Competition Law

Posted by D. Daniel Sokol

Nicolas Petit (University of Liege) discusses The Economics of Parallel Trade – Iconoclast Views on a Dogma of EU Competition Law.

ABSTRACT: This paper attempts to demonstrate that whilst parallel trade (also referred to as “grey market trade” in the United States, or as “arbitrage” in economic theory) in the European Union is subject to a remarkably favourable legal regime, the economic case supporting this approach remains to be made. To this end, it shows that the position of the EU Courts, and more generally of the EU institutions, is far from unquestionable in light of the relevant economic literature.

October 14, 2010 | Permalink | Comments (0) | TrackBack (0)

Revising the Horizontal Merger Guidelines: Lessons from the E.U. and the U.S.

Posted by D. Daniel Sokol

Richard J. Gilbert, University of California, Berkeley - Department of Economics and Daniel L. Rubinfeld, University of California at Berkeley - School of Law, NYU Law School explore Revising the Horizontal Merger Guidelines: Lessons from the E.U. and the U.S.

ABSTRACT: Recently, the U.S. Department of Justice and Federal Trade Commission have embarked on an effort to revise and update the U.S. Horizontal Merger Guidelines. here is substantial overlap between the U.S. and E.U. Guidelines, which makes a proposal for U.S. revisions immediately applicable to the E.U. and elsewhere. The U.S. Merger Guidelines can be revised in light of the learning of economists and lawyers in the past two decades to emphasize the importance of competitive effects analysis in merger evaluation and the forces that drive innovation. The Guidelines should also note that once a competitive effects analysis has been completed, it is possible to “back out” a relevant market (or markets) that is consistent with that competitive effects analysis.

October 14, 2010 | Permalink | Comments (0) | TrackBack (0)

Competition, Sanctions and Due Process in Troubled Times

Posted by D. Daniel Sokol

Andreas Mundt  (Bundeskartellamt) has written on Competition, Sanctions and Due Process in Troubled Times.

ABSTRACT: Cartel proceedings with heavy fines for cartel members are currently in the spotlight of media coverage. Hardcore-cartels are neither solutions to the challenges companies face in times of economic crisis nor in better times. They are serious restrictions of competition and a threat to the market economy. They typically lead to higher prices and reduce incentives to improve quality and innovation. Customers who have to pay the higher cartel price are being ‘ripped off’, to put it in simple words. They are the direct victims of illegal behaviour. The plausible economic harm to competition and consumers occurs irrespective of the general economic situation and the one of the undertakings involved in the cartel. Furthermore, cartels also hold back recovery in times of economic crisis.

October 14, 2010 | Permalink | Comments (0) | TrackBack (0)

Breaking News: Merger of UK Competition Bodies Announced

Posted by D. Daniel Sokol

The Department of Business Innovation and Skills announced, "The Competition Commission (CC) and the competition functions of the Office of Fair Trading (OFT) [to be] merged to form a single competition and markets authority" in its press release today.  The release further explains, "This new body would be responsible for merger regulation, market investigations, cartel and antitrust cases, as well as a number of functions with respect to the regulated utilities." 

 

October 14, 2010 | Permalink | Comments (1) | TrackBack (0)

General Court’s AstraZeneca Judgment Set to Embolden Commission

Posted by D. Daniel Sokol

Kristina Nordlander & Patrick Harrison (Sidley Austin) predict the General Court’s AstraZeneca Judgment Set to Embolden Commission.

ABSTRACT: Five years and two weeks is a long time to wait for a judgment on appeal. For many, it is too long. However, such is the nature of the General Court's July 1, 2010 judgment in AstraZeneca v Commission that innovative pharmaceutical manufacturers and other companies who are at risk of being found dominant may well wish the Court had never issued its judgment at all. Although the precise implications of the AstraZeneca judgment for the European Commission's ("Commission") enforcement policy under Article 102 of the Treaty on the Functioning of the European Union ("TFEU") will only gradually become known, it seems clear that the Commission will be emboldened in its pursuit of alleged abuses of dominance.

This article seeks to explore key parts of the judgment and their potential impact on Article 102 TFEU enforcement in the EU. Section II of the article sets out the background to the Court's judgment. Section III examines some of the more important points arising out of the judgment, including:

a) the findings on market definition, where the Court's upholding of the Commission's decision may lead to further Commission enforcement in cases based on narrow and controversial market definitions;

b) the broad-ranging "transparency" standards for dominant companies when dealing with regulatory authorities;

c) the findings that representations to authorities can constitute abuses under Article 102 TFEU even absent implementation, fraud, or bad faith and the resultant inconsistency with U.S. jurisprudence;

d) the Court's observations in relation to the introduction of new products and the withdrawal of their older equivalents;

e) the Court's pharmaceutical sector-specific observations; and

f)   why the Court's €7.5 million reduction in AstraZeneca's fine is of little significance going forward.

Section IV concludes by commenting on the impact the judgment may have on the Commission's enforcement policy in the pharmaceutical sector and on companies who are at risk of being found dominant on EU markets.

October 14, 2010 | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 13, 2010

What is the Future of UK Competition Policy Under the Tories? We will Find Out Very Soon

Posted by D. Daniel Sokol

I am waiting to find out.  According to the FT, the announcement will come tomorrow (Thursday).  In the meantime, the FT has stories here and here.  From the institutional structure issue, this will be a very interesting development.

My own sense on institutional issues in antitrust can be found in my recent article.

October 13, 2010 | Permalink | Comments (0) | TrackBack (0)

The Evolution of Brand Preferences: Evidence from Consumer Migration

Posted by D. Daniel Sokol

Bart J. Bronnenberg CentER, Tilburg University, Jean-Pierre H. Dube University of Chicago - Booth School of Business and Matthew Gentzkow University of Chicago - Booth School of Business describe The Evolution of Brand Preferences: Evidence from Consumer Migration.

ABSTRACT: We study the long-run evolution of brand preferences, using new data on consumers' life histories and purchases of consumer packaged goods. Variation in where consumers have lived in the past allows us to isolate the causal effect of past experiences on current purchases, holding constant contemporaneous supply-side factors such as availability, prices, and advertising. Heterogeneity in brand preferences explains 40 percent of geographic variation in market shares. These preferences develop endogenously as a function of consumers' life histories and are highly persistent once formed, with experiences 50 years in the past still exerting a significant effect on current consumption. Counterfactuals suggest that brand preferences create large entry barriers and durable advantages for incumbent firms, and can explain persistence of early-mover advantage over long periods. Variation across product categories shows that the persistence of brand preferences is related in an intuitive way to both advertising levels and the social visibility of consumption.

October 13, 2010 | Permalink | Comments (0) | TrackBack (0)

Vertical Restraints, Dealers with Power, and Antitrust Policy

Posted by D. Daniel Sokol

Herb Hovenkamp (Iowa Law) has posted the very interesting Vertical Restraints, Dealers with Power, and Antitrust Policy.

ABSTRACT: The Supreme Court’s Leegin decision has no brought the rule of reason to all purely vertical intrabrand distribution restraints. But the rule of reason does not mean per se legality and occasions for anticompetitive vertically imposed restraints may still arise. Of all those that have been suggested the most plausible are vertical restraints imposed at the behest of a powerful dealer or group (cartel) of dealers.

Although a vertical distribution restraint resembles a dealer cartel in that both limit intraband competition, a manufacturer restraining the distribution of its product shuns the excess dealer profits a dealer cartel would seek. Accordingly, a knowledgeable and un-coerced manufacturer who restricts rivalry among dealers must do so for some other reason, such as to facilitate dealer services. In fact, however, manufacturers have been known to restrain intrabrand competition — especially through resale price maintenance — not to achieve more effective distribution but rather to appease dealer interests in excess profits. Whatever the social benefits of a distribution restraint that serves a manufacturer's self-interest, a competition-limiting restraint extracted by dealer power can be harmful.

Vertical restraints reflecting dealer power could well be ignored by antitrust law if they were rare, insignificant in magnitude, or readily detected and remedied under other branches of antitrust law. But we doubt that dealer power is that rare and are troubled by an apparent history of price-enhancing resale price maintenance for the benefit of dealers. At least some of the claimed justifications for it actually reflect dealer power, and antitrust rules controlling horizontal combinations cannot themselves prevent those distribution restraints that result from the power of a single dealer.

Requiring the plaintiff to prove that the challenged restraint is explained solely and exclusively on cartel, dealer power, or other non-efficiency grounds would be an attractive policy option for those who think such instances are rare. This option allows prompt validation of many such restraints. On the other hand, requiring the defenders to offer a plausible and legitimate business reason for every restraint would allow the antitrust tribunal easily to condemn those restraints obviously lacking justification but would complicate many cases in which dealer power is unlikely. Depending on the restraint, challengers might be required to prove specified indicia of dealer power, or, for legally less favored restraints, such power might be presumed subject to rebuttal by disproof of the same specified indicia. In sum, presumptions must be developed that will both clarify and simplify the fact finding process.

October 13, 2010 | Permalink | Comments (0) | TrackBack (0)

Cartel Settlements and Commitment Decisions

Posted by D. Daniel Sokol

Mel Marquis, European University Institute, University of Verona addresses Cartel Settlements and Commitment Decisions.

ABSTRACT: This is the introductory chapter to a 38-chapter book relating to two principal subjects: the decision of competition authorities to settle cartel cases, with a focus on the development of a cartel settlement regime in Europe; and the use by the European Commission of “commitments decisions” under Article 9 of Regulation 1/2003 to close non-cartel cases. The author discusses the various chapters of the book in detail and highlights continuities as well as points of contention.

October 13, 2010 | Permalink | Comments (0) | TrackBack (0)