Antitrust & Competition Policy Blog

Leadership Contestability, Monopolistic Rents and Growth

Posted by D. Daniel Sokol

Roberto Piazza (IMF) discusses Leadership Contestability, Monopolistic Rents and Growth.

ABSTRACT: I construct an endogenous growth model where R&D is carried out at the industry level in a game of innovation between leaders and followers. Innovation costs for followers are assumed to increase with the technological lag from leaders. We obtain three results that contrast with standard Schumpeterian models, such as Aghion and Howitt (1992). First, leaders may innovate in equilibrium, in an attempt to force followers out of the innovation game. Second, policies (such as patents) that allow for strong protections of monopolies can reduce the steady state growth rate of the economy. Third, multiple equilibria arise when monopolies' protection is large.

Dynamic Adverse Selection and the Size of the Informed Side of the Market

Posted by D. Daniel Sokol

Ennio Bilancini and Leonardo Boncinelli explore Dynamic Adverse Selection and the Size of the Informed Side of the Market.

ABSTRACT: In this paper we examine the problem of dynamic adverse selection in a stylized market where the quality of goods is a seller’s private information. We show that in equilibrium all goods can be traded if a simple piece of information is made publicly available: the size of the informed side of the market. Moreover, we show that if exchanges can take place frequently enough, then agents roughly enjoy the entire potential surplus from exchanges. We illustrate these findings with a dynamic model of trade where buyers and sellers repeatedly interact over time. More precisely we prove that, if the size of the informed side of the market is a public information at each trading stage, then there exists a weak perfect Bayesian equilibrium where all goods are sold in finite time and where the price and quality of traded goods are increasing over time. Moreover, we show that as the time between exchanges becomes arbitrarily smal! l, full trade still obtains in finite time – i.e., all goods are actually traded in equilibrium – while total surplus from exchanges converges to the entire potential. These results suggest two policy interventions in markets suffering from dynamic adverse selection: first, the public disclosure of the size of the informed side of the market in each trading stage and, second, the increase of the frequency of trading stages.

The German and Romanian Abuse of Market Dominance in the Light of Article 102 TFEU

Posted by D. Daniel Sokol

Anca Daniela Chirita has written The German and Romanian Abuse of Market Dominance in the light of Article 102 TFEU, in the collection of Europa-Institut, Saarland University, vol 82, Baden-Baden, Nomos.

BOOK ABSTRACT: The book approaches the substantive provisions on the abuse of dominance by undertakings, the relevant economic and historically rooted approaches, including EU competition policy goals after Lisbon, based on the German and Romanian legal context, competition enforcement and experience. It analyses the relevance of stricter national rules especially of non-dominant undertakings based on traders’ performance as a distinct field of law focused on the exploitative abuse as unfair methods of competition. It highlights how the Commission’s Guidance Paper included an incipient model of more effects-based competition law that departs from the static market structure focus on exclusionary abuse and focuses on harm and efficiencies. It also covers recent cases on the misuse of intellectual and industrial property rights, including unified standards and smaller businesses, and explains the thin borderline between free and fair competition based on open markets and public policy, with innovation balancing respectively. The book gradually advances new interpretations of Article 102 TFEU to include dynamic competition and concludes with a developing Union trading law in need of a Regulation governing aspects of fair competition and relevant administrative criteria.

Competitive Targeted Advertising with Price Discrimination

Posted by D. Daniel Sokol

Rosa Branca Esteves (Universidade do Minho - NIPE) and Joana Resende (Universidade do Porto - FEP) study Competitive Targeted Advertising with Price Discrimination.

ABSTRACT: This paper investigates the effects of price discrimination by means of targeted advertising in a duopolistic market where the distribution of consumers' preferences is discrete and where advertising plays two major roles. It is used by firms as a way to transmit relevant information to otherwise uninformed consumers, and it is used as a price discrimination device. We compare the firms' optimal marketing mix (advertising and pricing) when they adopt mass advertising/non-discrimination strategies and targeted advertising/price discrimination strategies. If firms are able to adopt targeted advertising strategies, we find that the symmetric price equilibrium is in mixed strategies, while the advertising is chosen deterministically. Our results also unveil that as long as we allow for imperfect substitutability between the goods, ?rms do not necessarily target more ads to their own market. In particular, firms' optimal marketing mix leads to higher advertising reach in the rival's market than in the firms' own market, provided that advertising costs are sufficiently low in relation to the consumer's reservation value. The comparison of the optimal marketing-mix under mass advertising strategies and targeted advertising strategies reveals that targeted advertising might constitute a tool to dampen price competition. In particular, if advertising costs are sufficiently low in relation to the value of the goods, we obtain that average prices with non-discrimination (mass advertising) are below those with price discrimination and targeted advertising (regardless of the market segment). Accordingly, when (i) goods are imperfect substitutes, (ii) advertising is not too expensive, and (iii) targeted advertising constitutes an effective price discrimination tool, price discrimination through targeted advertising may be detrimental to social welfare since it boosts industry profits at the expense of consumer surplus.

A Return to Simplicity? A History of Developments in the Economic Analysis of Mergers

Posted by D. Daniel Sokol

Diana Jackson (CRA) asks A Return to Simplicity? A History of Developments in the Economic Analysis of Mergers.

ABSTRACT: The recent introduction of simplified economic approaches to merger analysis (such as the ‘upward pricing pressure’ and ‘indicative price increase’ tests) might seem to indicate a return to simplicity in the economic assessment of mergers. Certainly these measures take a step back from the highly resource intensive demand estimation and merger simulation tools commonly applied in recent cases. While these simple tools do incorporate many of the main insights of more recent developments in the economic analysis of mergers, their simplicity is achieved by making a range of additional assumptions. Therefore, these tools are likely to be used as screening tools for potential merger effects, rather than as replacements for more complex techniques. This article tracks some of the key historic developments in economic approaches to merger analysis, placing these ‘new’ tests in their historic context, and argues that whether ‘simple’ or ‘sophisticated’ analyses are used, the basics must not be forgotten: know your market and know your data.

The Application of European Competition Law in the Transport Sector

Posted by D. Daniel Sokol

Pierre Frühling, Charles Whiddington, John Cassels, Stéphanie Golinvaux, and Claire Brinn (all Field Fisher Waterhouse) discuss The Application of European Competition Law in the Transport Sector.

ABSTRACT: This article describes some of the most notable developments in the transport sectors under EU and competition laws during 2010. It provides an overview of the major European cases, as well as regulatory developments.

Extension of Crisis-Related State Aid Rules for Banks as Eurozone Economies Continue to Lurch

Posted by D. Daniel Sokol

Davina Garrod and Alastair Mackay (both Bingham McCutchen) have written on Extension of Crisis-Related State Aid Rules for Banks as Eurozone Economies Continue to Lurch.

ABSTRACT: The European Commission issued a Communication on 1 December, 2010 setting out the parameters for the ongoing temporary acceptability of crisis-related assistance to banks as from 1 January 2011, in effect prolonging the four existing ‘Banking Crisis’ Communications published as the financial crisis intensified in the months following the collapse of Lehman Brothers.

Competition Law and the Pharmaceutical Industry

Posted by D. Daniel Sokol

This is a final reminder that the conference on Competition Law and the Pharmaceutical Industry will be held on 17^th May 2011 in St Catherine’s College, Oxford.

Speakers include: Michael Carrier (Rutgers), Elisabeth Eklund (Delphi), Hugh Hollman (FTC), Helen Jenkins (OXERA), Ian Karet (Linklaters), Greg Perry (European Generic Medicines Association), Julia Pike (Sandoz), Dominik Schnichels (European Commission), Geoffrey Steadman (OFT), Pat Treacy (Bristows), Steve Shadowen (Hangley Aronchick Segal and Pudlin) and Mark Williams (NERA).

The conference will end with a roundtable discussion chaired by Steven Anderman (Essex) with the panel members being:

Sir Christopher Bellamy
Hugh Hollman
Simon Priddis
John Schmidt
Geoffrey Steadman

To register please visit the conference registration and payment page.

For more information on this event, please contact: Jenny Dix

Full Conference Programme (Acrobat PDF file)

Competitive Pressure and the Adoption of Complementary Innovations

Posted by D. Daniel Sokol

Tobias Kretschmer, University of Munich, London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP), Eugenio J. Miravete, University of Texas at Austin, Centre for Economic Policy Research (CEPR), and José C. Pernías, Jaume I University - Department of Economics describe Competitive Pressure and the Adoption of Complementary Innovations.

ABSTRACT: Liberalization of the European automobile distribution system in 2002 limits the ability of manufacturers to impose vertical restraints, leading to a substantial increase in competitive pressure among dealers. We estimate an equilibrium model of profit maximization to evaluate how dealers change their innovation adoption strategies following the elimination of exclusive territories. Using French data we evaluate the existence of complementarities between the adoption of software applications and the scale of production. Firms view these innovations as substitutes and concentrate their effort in one type of software as they expand their scale of production. Results are robust to the existence of unobserved heterogeneity.

Removing Property from Intellectual Property and (Intended?) Pernicious Impacts on Innovation and Competition

Posted by D. Daniel Sokol

Scott Kieff (GW Law) has posted Removing Property from Intellectual Property and (Intended?) Pernicious Impacts on Innovation and Competition.

ABSTRACT: Commentators have poured forth a loud and sustained outcry over the past few years that sees property rule treatment of intellectual property (IP) as a cause of excessive transaction costs, thickets, anticommons, hold-ups, hold-outs, and trolls, which unduly tax and retard innovation, competition, and economic growth. The popular response has been to seek a legislative shift towards some limited use of weaker, liability rule treatment, usually portrayed as “just enough” to facilitate transactions in those special cases where the bargaining problems are at their worst and where escape hatches are most needed. This essay is designed to make two contributions. First, it shows how a set of changes in case law over just the past few years have hugely re-shaped the patent system from having several major, and helpful, liability-rule-pressure-release-valves, into a system that is fast becoming almost devoid of significant property rule characteristics, at least for those small entities that would most need property rule protection. The essay then explores some harmful effects of this shift, focusing on the ways liability rule treatment can seriously impede the beneficial deal-making mechanisms that facilitate innovation and competition. The basic intuition behind this bad effect of liability rules is that they seriously frustrate the ability for a market-challenging patentee to attract and hold the constructive attention of a potential contracting party (especially one that is a larger more established party) while preserving the option to terminate the negotiations in favor of striking a deal with a different party. At the same time, liability rules can have an additional bad effect of helping existing competitors to coordinate with each other over ways to keep out new entrants. The essay is designed to contribute to the literature on IP in particular, as well as the broader literatures on property and coordination, by first showing how a seemingly disconnected set of changes to the legal rules impacting a particular legal regime like the patent system can have unintended and sweeping harmful consequences, and then by exploring why within the more middle range of the spectrum between the two poles of property rules and liability rules, a general shift towards the property side may be preferred by those seeking an increase in access and competition.

Fines and Damages Under EU Competition Law – Implications of the Accumulation of Liability

Posted by D. Daniel Sokol

Michael J. Frese, Amsterdan Center for Law & Economics (ACLE) explains Fines and Damages Under EU Competition Law – Implications of the Accumulation of Liability.

ABSTRACT: This paper identifies occurrences of negative interplay between public and private enforcement of EU competition law. For this purpose a detailed account of the premises underlying the EU’s dual enforcement system is provided against the background of efficiency, effectiveness, fundamental rights and proportionality. These four interests, both internal and external to the EU’s competition policy, can be affected if liability in parallel enforcement proceedings is either excessive or uncoordinated. While actors involved in the enforcement process are gradually recognising these risks, so far the solutions offered remain incidental.

Analyzing the Determinants of Temporary Antitrust Immunity Seeking Behavior: The Dispensation Requests in the Netherlands

Posted by D. Daniel Sokol

Erik Brouwer, Tilburg Law and Economics Center (TILEC) and Fatih Cemil Ozbugday, Tilburg Law and Economics Center (TILEC), Tilburg University - Department of Economics address Analyzing the Determinants of Temporary Antitrust Immunity Seeking Behavior: The Dispensation Requests in the Netherlands.

ABSTRACT: This paper examines the determinants of antitrust immunity seeking behavior at industry level for the Netherlands. Our findings suggest that market structure and the level of competition are important determinants of antitrust immunity seeking behavior. There were more dispensation requests in less competitive industries. On the other hand, we could not find systematic evidence for the impact of the degree of interaction and asymmetry on antitrust immunity seeking behavior in the Netherlands, even though we had legitimate reasons to believe that they had. Finally, we could not detect any effect of market demand growth and profitability on exemption application counts.

Whither Harmonization? India's Draft Combination Regulations

Posted by D. Daniel Sokol

Christine S. Wilson, Ellen M. Jakovic, & Aaron L. Nielson (Kirkland) have a new paper on Whither Harmonization? India's Draft Combination Regulations.

ABSTRACT:ndia's economy is fast becoming one of the largest and most vibrant in the world. While the recent global economic downturn has caused the economies of other large nations to stagnate, India's continues to thrive. Indeed, Willem H. Buiter, chief economist for Citigroup and a chaired professor at the London School of Economics, recently predicted that "India will be the largest economy in the world by 2050." The world is paying close attention to India and its remarkable progression into an economic superpower.

But rapid growth brings challenges. One formidable challenge facing India lies in crafting a merger review regime that protects the country's legitimate sovereign interests while avoiding the imposition of undue costs on merging parties and consumers. The magnitude of this challenge is apparent when one considers the remarkable amount of attention that has been paid to the lengthy process undertaken by the Competition Commission of India ("CCI") in preparing to launch India's merger regime. Each step in the process has been the subject of intense scrutiny and lively dialogue not only within India, but also around the globe. This lengthy process is drawing to a close: On March 1, 2011, the CCI published what it hopes will be the last draft of the Combination Regulations before they take effect on June 1, 2011.

The Draft Regulations present important questions for India, but also for international competition policy more broadly. Because a laudable relaxation of India's regulations governing both inbound and outbound investments has led to a rapidly increasing volume of trans-border deals, India's merger regime will affect countless transactions. Only with careful calibration can the CCI facilitate beneficial cross-border investment and trade while avoiding undue transaction costs on these deals and, consequently, unnecessary harm to consumers. Compounding India's challenge is the fact that many countries are creating or have recently created merger review regimes of their own. If India's merger review regime is perceived as being out of step with those of other countries, serious repercussions on deal flow could result.

This article examines the CCI's Draft Regulations in the context of India's rapid economic growth, with particular emphasis on how those regulations will impact the prospects of international harmonization of merger notification standards. While the CCI wisely has adopted many of the "best practices" suggested by the International Competition Network ("ICN") and the Organisation for Economic Co-operation and Development ("OECD"), it has not yet embraced key recommended practices. Accordingly, this article suggests that the CCI should review those aspects of its Draft Combination Regulations that depart from internationally accepted best practices and give careful consideration to whether conformity can be achieved.

 

The New United States Horizontal Merger Guidelines: Devolution, Evolution, or Counterrevolution?

Posted by D. Daniel Sokol

Tom Horton (South Dakota Law) asks The New United States Horizontal Merger Guidelines: Devolution, Evolution, or Counterrevolution?

ABSTRACT: This article reviews the new Horizontal Merger Guidelines released on August 19, 2010, by the United States Department of Justice, through its Antitrust Division, and the Federal Trade Commission. The United States' New Horizontal Merger Guidelines converge towards and closely mimic their European counterparts. Indeed, the New Guidelines differ dramatically from their 1992 predecessors, and signal an American competition theory counterrevolution. First, they reveal a commitment towards more aggressive horizontal merger enforcement driven by a renewed emphasis on the incipiency standard. Second, they set out a less formulaic and rigid review methodology, which the Agencies hope will prove to be more litigation friendly, as they pursue enforcement cases in American courts. And third, they indicate heightened concerns about potential unilateral effects, including exclusionary conduct, and impacts on non-price competition such as quality, variety, and innovation. When the New Guidelines are systematically compared side by side to the EC's, the resemblances are striking. Indeed, the New Guidelines more closely resemble the EC's than they do their 1992 predecessors. It can be fairly concluded that the New Guidelines' drafters were heavily influenced by, and paid close attention to, the EC's guidelines. However, it is unclear whether the New Guidelines will survive a conservative administration, or how they will be accepted and interpreted by the American courts.

Aiming for Alliance: Competition Law and Consumer Welfare

Posted by D. Daniel Sokol

Pieter Kalbfleisch (Netherlands Competition Authority) is Aiming for Alliance: Competition Law and Consumer Welfare.

ABSTRACT: An important question is whether improving consumer welfare is, or should be, an explicitly-stated goal of competition law enforcement. In addressing this question, we must focus, concretely, on what consumer welfare means in competition law enforcement, and on whether it can be quantified. A suggestion is to integrate the standard in the theory of harm and to use it to measure the outcome of competition authorities' interventions.

Join the Blog's Linkedin Group

Posted by D. Daniel Sokol

Get linkedin with our blog and readership community here.

Back to Microsoft I and II: Tying and the Art of Secret Magic

Posted by D. Daniel Sokol

Nicolas Petit (University of Liege) and Norman Neyrinck (Uinversity of Liege) have written on Back to Microsoft I and II: Tying and the Art of Secret Magic.

ABSTRACT: For the authors, the Microsoft I and II cases are not tying cases, but rather disguised refusal-to-supply cases. As there was no clear evidence of coercion in both cases, the Commission plugged the hole with behavioural economics—but did so, for the authors, unconvincingly. The outcome of the two cases demonstrate that the remedies proposed by the Commission did not address the harm which was supposedly created.

 

American Antitrust Institute 12th annual national conference "International Economics for Antitrusters: Learning from Two Decades of Deep Globalization" June 23, 2011

Posted by D. Daniel Sokol

On June 23, the American Antitrust Institute will host its 12th annual national conference "International Economics for Antitrusters: Learning from Two Decades of Deep Globalization."   The day will begin by discussing the concept of deep globalization (relying on  David Gerber's excellent new book, Global Competition) and will examine how  the economic world has changed since the fall of the USSR.  Later sessions will focus on some of the implications of deep globalization for antitrust.   Panels will feature thought leaders and top practioners from the U.S. and Europe to provide the latest in thinking about subjects ranging from  international cartels to privatization to the role of competition advocacy during financial crisis.  The keynote address will be delivered by former EC  Commissioner for Competition Policy Mario Monti when he is presented AAI's Alfred E. Kahn Award for Antitrust Achievement.    Held at the National Press Club in Washington D.C., the annual conference is  attended by leaders of the antitrust community including academics, lawyers, economists and agency and Capitol Hill staff. Tuition for this program is $500 with a discounted rate of $120 for government employees, educators, public interest advocates and students. The full day of presentations and panel discussions are outlined in the agenda below.

Register Now! I can't make it

AGENDA   9:00 am Welcome and Overview Albert A. Foer, President, American Antitrust Institute   9:30 am The Concept of Deep Globalization Frédéric Jenny, Judge, Supreme Court of France; Chairman, OECD Competition Law and Policy Committee; Professor of Economics, ESSEC Business School Clyde Prestowitz, President, Economic Strategy Institute; Author of The Betrayal of American Prosperity Martha L. Rees, Vice President and Assistant General Counsel, DuPont   10:30 am Antitrust Challenges of Deep Globalization Rachel Brandenburger, Special Advisor, International, Antitrust Division, U.S. Department of Justice Eleanor Fox, Professor of Trade Regulation, New York University School of Law Niels Petersen, Max Planck Institute for Research on Collective Goods   11:30 am Breakout Sessions     International Cartels John M. Connor, Professor of Industrial Economics, Purdue University Donald Klawiter, Partner, Sheppard Mullin Richter & Hampton LLP Robert H. Lande, Professor of Law, University of Baltimore School of Law   The Disconnect Between Economic Realities and Global Institutions Thomas McCoy, Partner, O'Melveny & Myers LLP Paul Nihoul, Professor of Law at the University of Louvain (Belgium); Jean Monnet Fulbright Scholar, American University Washington College of Law Eleanor Fox   12:30 pm Luncheon Presentation of Jerry S. Cohen Award for Antitrust Scholarship   Presentation of AAI's Alfred Kahn Award for Antitrust Achievement to Mario Monti   Keynote Address: Mario Monti, President, Bocconi University; former European Commissioner for Competition   2:30 pm Breakout Sessions   State-Owned and Recently Privatized Enterprises Russell Pittman, Economist, Antitrust Division, U.S. Department of Justice Douglas Rosenthal, Partner, Constantine|Cannon; former head of the U.S.DOJ Foreign Commerce Section Audrey Winter, Deputy Assistant U.S. Trade Representative, China Affairs   Competition Policy Amidst Financial Crisis Simon Johnson, Professor of Global Economics and Management, MIT; Author of 13 Bankers: The Wall Street Takeover and The Next Financial Meltdown Ioannis Kokkoris, University of Reading (U.K.), co-author of Antitrust Amidst Financial Crisis   4:00  Networking Reception

Earning Exclusivity: Generic Drug Incentives and the Hatch-Waxman Act

Posted by D. Daniel Sokol

C. Scott Hemphill, Columbia University - Law School and Mark A. Lemley, Stanford Law School have an interesting new piece on Earning Exclusivity: Generic Drug Incentives and the Hatch-Waxman Act.

ABSTRACT: “Reverse” or “exclusion” payments to settle pharmaceutical patent lawsuits are facilitated because the Hatch-Waxman Act has been interpreted to give 180 days of generic exclusivity to the first generic company to file for FDA approval, whether or not that company succeeds in invalidating the patent or finding a way to avoid infringement. As a result, the patentee can “buy off” the first generic entrant, paying them to delay their entry into the market while still offering them the valuable period of generic exclusivity. And if that first generic is entitled to its 180 days, no one else can enter until after the exclusivity period has expired or been forfeited. The result is that the 180-day exclusivity period is not serving its purpose of eliminating weak patents. True, it is encouraging lots of challenges to those patents. But it is encouraging the challengers to accept compensation to drop those challenges, rather than taking them to judgment and benefiting the rest of the world.

Interview with Alexander Italianer in the Antitrust Source

Posted by D. Daniel Sokol

The interview is here.