Antitrust & Competition Policy Blog

Should Setllements in Which the Patent Owners Pay the Accused Infringers to Stay Out the Market Be Illegal Per Se

Posted by D. Daniel Sokol

Tabrez Ahmad, College of Law Alliance University and Neha Mishra, Kalinga Institute of Industrial Technology (KIIT University) - KIIT Law School ask Should Setllements in Which the Patent Owners Pay the Accused Infringers to Stay Out the Market Be Illegal Per Se.

ABSTRACT:

The entire topic revolves around the concept of reverse settlement payment in which a huge lump of money is paid by the company owning the patent to the generic company for not infringing its product and so that it could enjoy its 20 years for that patent. These provisions are enabled by Hatch-Waxman Act as to application by the patent owner to obtain a patent and it also deals with on what specific grounds a generic company can infringe the patent of the patent owner. The topic briefly narrows down about how reverse payment settlement is violating the antitrust laws and its related case laws. It also describes about how reverse settlement violated the competition law provisions.

Cartel Detection in Procurement Markets

Posted by D. Daniel Sokol

Kai Huschelrath, Centre for European Economic Research (ZEW) and Tobias Veith, Centre for European Economic Research (ZEW) have written on Cartel Detection in Procurement Markets.

ABSTRACT: Cartel detection is usually viewed as a key task of either competition authorities or compliance officials in firms with an elevated risk of cartelization. We argue that customers of hard core cartels can have both incentives and possibilities to detect such agreements on their own initiative through the use of market-specific data sets. We apply a unique data set of about 340,000 market transactions from 36 smaller and larger customers of German cement producers and show that a price screen would have allowed particularly larger customers to detect the upstream cement cartel before the competition authority. The results not only suggest that monitoring procurement markets through screening tools has the potential of substantial cost reductions – thereby improving the competitive position of the respective user firms – but also allow the conclusion that competition authorities should view customers of potentially cartelized industries as important allies in their endeavor to fight hard core cartels.

Private Labels (Own Brands) in the Grocery Sector: Competition Concerns and Treatment in EU Competition Law

Posted by D. Daniel Sokol

Victoria I. Daskalova, TILEC, Tilburg Law School discusses Private Labels (Own Brands) in the Grocery Sector: Competition Concerns and Treatment in EU Competition Law.

ABSTRACT: The past decade has seen growing antitrust concerns about the impact of private label goods on consumer welfare and competition in the grocery trade. Market investigations of the sector have been launched in several Member States, and there have also been legislative attempts to curb the power of large grocery retailers. Private labels have provoked interest not only because they increase the bargaining power of a retailer, but also because they fundamentally change the relationship between retailers and suppliers from one between trading partners to one between competitors. Because they place the retailer in the double role of a customer and a competitor of its suppliers, private labels are believed to create incentives for the grocery chains to resort to practices, which in turn lead to unfavorable outcomes for the consumers. Some of these practices include: misuse of a branded good’s product information to introduce competing private label products, de-listing of tertiary brands in order to replace them with undifferentiated me-too private labels, and using the strict rules on resale price maintenance to position the private label product in a more favorable position vis-a-vis the brand. Legal scholars and practitioners have been under pressure to find out in what ways competition rules may be used to limit these practices.

The goal of this paper is to give a comprehensive overview of the competition law issues that might arise in the context of private labels. The paper is divided into two parts: first, it contextualizes the claims related to the welfare effects of the introduction and continued presence of private labels. It shows that private labels may lead to a reduction in consumer welfare and discusses the practices and conditions that might lead to this negative outcome. The second part of the paper sketches the applicable legal framework under EU competition law as it may apply to the practices mentioned. The paper concludes with a discussion of the challenges for the effective treatment of harm arising from the retailer practices associated with private labels.

Strategic Vertical Market Structure and Opaque Products

Posted by D. Daniel Sokol

Mariano E. Tappata, University of British Columbia - Sauder School of Business, offers his thoughts on Strategic Vertical Market Structure and Opaque Products.

ABSTRACT: This paper studies opaque intermediation in differentiated product markets. We endow a circular city model with an intermediary that sells lotteries (opaque goods) over goods produced upstream. Compared to the benchmark model (Salop, 1979), opaque intermediation increases the intensity of price competition. However, it can be a profitable vertical market structure. Furthermore, it increases welfare and expands the range of entry costs supported by the industry. The emergence of opaque intermediation in established industries can be rationalized in the presence of seasonal demand such that the lower profits through increased competition when demand is high are outweighed by the benefits from expanding the extensive margin when demand is low.

Why the U.K.'s New Approach to Competition Compliance Makes for Good Enforcement

Posted by D. Daniel Sokol

Andreas Stephan (Univ. of East Anglia) explains Why the U.K.'s New Approach to Competition Compliance Makes for Good Enforcement.

ABSTRACT: There is still much to do in the United Kingdom to champion compliance so as to strengthen competition enforcement and deterrence. The OFT has taken the hardest steps in both recognizing the importance of compliance and acknowledging that the existence of an infringement should not render a firm's entire compliance program a failure. There are a limited number of competition authorities that are following a similar path, but it remains to be seen whether a progressive view of compliance becomes the norm in antitrust.

Product Market Synergies and Competition in Mergers and Acquisitions

Posted by D. Daniel Sokol

Gerard Hoberg, University of Maryland - Department of Finance and Gordon M. Phillips, University of Maryland - Department of Finance address Product Market Synergies and Competition in Mergers and Acquisitions.

ABSTRACT: We examine how product differentiation influences mergers and acquisitions and the ability of firms to exploit product market synergies. Using novel text-based analysis of firm 10K product descriptions, we find three key results. (1) Firms are more likely to enter restructuring transactions when the language describing their assets is similar to all other firms, consistent with their assets being more redeployable. (2) Targets earn lower announcement returns when similar alternative target firms exist. (3) Acquiring firms in competitive product markets experience increased profitability, higher sales growth, and increased changes in their product descriptions when they buy target firms that are similar to them and different from rival firms. Our findings are consistent with similar merging firms exploiting synergies to create new products and increase their product differentiation relative to ex-ante rivals.

Is Intent Relevant?

Posted by D. Daniel Sokol

Maurice Stucke (Tennessee Law) asks Is Intent Relevant?

ABSTRACT: The role of intent in federal antitrust cases has been characterized as “unsettled” and “controversial.” Many lower courts, scholars, and practitioners recognize that intent evidence is relevant in antitrust cases. But jurists and scholars oriented by neoclassical economic theory disagree.

Using the developments in the behavioral economics literature, this Article reexamines the relevancy of intent evidence in antitrust cases. The analysis is organized around two issues: First is intent legally relevant in antitrust cases generally and monopolization cases specifically? Second if intent evidence is relevant, for what purpose?

Intent evidence, this Article concludes, is relevant. The behavioral economics experiments confirm what many have long accepted: intent matters. Greed does not always motivate us. Greed is not necessary for a market economy to thrive. Competition need not be zero-sum warfare. But the literature has two important implications. First, intent may be helpful, but to a lesser degree than some courts and scholars assume, in assessing the likely anti-competitive effects. Second, intent evidence can be more important than courts may otherwise assume under neoclassical theory. People rely on intent when coding and punishing behavior as unfair and unreasonable, which in turn can promote a market economy and overall societal welfare.

Game complete analysis of symmetric Cournot duopoly

Posted by D. Daniel Sokol

David Carfe (University of California at Riverside) and Emanuele Perrone (University of Messina) offer a Game complete analysis of symmetric Cournot duopoly.

ABSTRACT: In this paper we apply the Complete Analysis of Differentiable Games to the classic Cournot Duopoly (1838), classic oligopolistic market in which there are two enterprises producing the same commodity and selling it in the same market. In this classic model, in a competitive background, the two enterprises employ, as possible strategies, the quantities of the commodity produced. The main solutions proposed in literature for this kind of duopoly are the Nash equilibrium and the Collusive Optimum, without any subsequent critical exam about these two kinds of solutions. The absence of any critical quantitative analysis is due to the relevant lack of knowledge regarding the set of all possible outcomes of this strategic interaction. On the contrary, by considering the Cournot Duopoly as a differentiable game (a game with differentiable payoff functions) and studying it by the new topological methodologies introduced by D. Carfì, we obtain an exhaustive and complete vision of the entire payoff space of the Cournot game (this also in asymmetric cases with the help of computers) and this total view allows us to analyze critically the classic solutions and to find other ways of action to select Pareto strategies. In order to illustrate the application of this topological methodology to the considered infinite game, several compromise decisions are considered, and we show how the complete study gives a real extremely extended comprehension of the classic model.

The Predictive Power of Merger Analysis

Posted by D. Daniel Sokol

John Kirkwood (Seattle U) explores The Predictive Power of Merger Analysis.

ABSTRACT: This article looks first at the process courts use to resolve merger challenges and finds that in the area of product market definition, merger analysis is reasonably strong. Market definition remains complex and subjective, however, and could be improved, or avoided altogether, through econometric techniques such as merger simulation. Judicial analysis of entry is much weaker. Courts ask whether the market is protected by entry barriers but rarely ask whether the barriers are high enough to make entry unprofitable. The article also examines the results of “marginal” mergers, mergers that would have been blocked if the government and courts had been somewhat more aggressive. Measured in this way, merger analysis is not seriously off target: the merger retrospectives find that very few transactions led to sharp price changes. They also find, however, that a large proportion of marginal mergers resulted in small price increases, which suggests that in appropriate cases, enforcement agencies and courts should be more willing to predict anticompetitive effects.

How Can One Distinguish Cartels from Legitimate Cross-Licensing Arrangements between Competitors

Posted by D. Daniel Sokol

Tabrez Ahmad, College of Law Alliance University and Ankur Mishra, KIIT University, KIIT Law School ask How Can One Distinguish Cartels from Legitimate Cross-Licensing Arrangements between Competitors.

ABSTRACT: Cartels are a focus of concern for many reasons. Cartels cause a locative inefficiency by reducing production in order to raise market price. This forces consumers to pay significantly more money for products, from luxuries like high end art to necessities like vitamins and pharmaceuticals. Fortunately, cartels are inherently unstable. Many of the problems of cartel stability are related to trust. For a cartel to be formed, each participant must trust its cartel partners not to do two things: cheat on the agreement by charging less than the fixed price, or tell antitrust authorities about the cartel. In our article we will try to place all the methods of distinguishing cartels from cross-licensing arrangements between competitors. It is very important to know about cartels and cross licensing arrangements in the competitive world. Cross licensing is legal where as Cartels are legal and illegal both, in Cross licensing there is no such strict requirement of trust but in Cartels trust is required among the members of the cartel. There are two methods for competitors to expose their business and earn profit in case of IP related transactions. Several developed countries have separate laws which are specifically applied to Cartels but in India there is no such law it is governed under the Competition Act.

Economic Analysis of Pay-for-Delay Settlements and Their Legal Ruling

Posted by D. Daniel Sokol

Linda Gratz, Max Planck Institute for Intellectual Property and Competition Law, Ludwig Maximilians University of Munich - Munich Graduate School of Economics (MGSE) provides an Economic Analysis of Pay-for-Delay Settlements and Their Legal Ruling.

ABSTRACT: In this paper, we ask whether courts should continue to rule settlements in the context of pharmaceutical claims per se legal, when these settlements comprise payments from originator to generic companies, potentially delaying generic entry compared to the underlying litigations. We find that the rule of per se legality induces maximal collusion among settling companies and therefore yields the lowest consumer welfare compared to alternative rules. While under the rule of per se illegality settling companies are entirely prevented from colluding, under the rule of reason they collude to a limited degree when antitrust enforcement is subject to error. Contrary to intuition, limited collusion can be welfare enhancing as it increases settling parties' profits, and thus fosters generic entry. Alternative incentive devices to foster generic entry, for instance, the provision of an exclusivity right to first generic entrants, as implemented within the Hatch-Waxman Act of 1984, are shown to be ineffective.

Competitive Effects of Exchanges or Sales of Airport Landing Slots

Posted by D. Daniel Sokol

James D. Reitzes, The Brattle Group, Brendan McVeigh, The Brattle Group, Nicholas Powers, The Brattle Group and Samuel Moy, The Brattle Group study Competitive Effects of Exchanges or Sales of Airport Landing Slots.

ABSTRACT: We investigate the competitive effects of exchanges or sales of airport landing slots. In our model, airlines with potentially asymmetric slot allocations must decide upon which routes to use their landing slots. When all airlines serve the same routes in a slot-constrained Cournot Nash equilibrium, small changes in slot allocations among airlines do not affect the overall allocation of slots across routes or air fares. In a symmetric equilibrium where slot holding airlines have the same number of slots, we find that an increase in the number of slot-holding airlines leads to higher social welfare and consumer surplus, although the number of served routes may decline. Under asymmetric slot allocations, larger slot holders serve "thin" demand routes that are not served by smaller slot holders. In this situation, transfers of slots from larger to smaller slot holders increase social welfare and consumer surplus, even though fewer routes may be served. More generally, our results suggest that increases in slot concentration are harmful to consumers and social welfare, although consumers on relatively thin routes may gain air transportation service as a result.

Convergence and Its Discontents: A Reconsideration of the Merits of Convergence of Global Competition Law

Posted by D. Daniel Sokol

Thomas Cheng (University of Hong Kong Law) explores Convergence and Its Discontents: A Reconsideration of the Merits of Convergence of Global Competition Law.

ABSTRACT: This Article examines the recent phenomenon of the convergence of competition law regimes across the globe. The increasing harmonization of competition law, at both the procedural and substantive levels, has been widely discussed and applauded in recent years. This Article casts doubt on the conventional wisdom that convergence necessarily constitutes a positive development in global competition law. After analyzing the causes of the phenomenon, this Article argues that there should be limits to the pursuit of convergence. First, the costs of convergence should not be overlooked. The most important of such costs is the loss of national regulatory prerogative. Second, the multitude of goals that are pursued by different jurisdictions in their competition laws poses serious obstacles to convergence. Finally, the need to incorporate economic development considerations and cultural variations in market behavior further cautions against wholesale harmonization of competition laws.

Concurrences Antitrust Writing Awards 2012

Posted by D. Daniel Sokol

Concurrences is sponsoring a 2012 Antitrust Writing Award. Vote today.

How DG Competition and U.S. DOJ Antitrust Division Hurt Compliance Efforts

Posted by D. Daniel Sokol

Joe Murphy (Society of Corporate Ethics and Compliance) discusses How DG Competition and U.S. DOJ Antitrust Division Hurt Compliance Efforts.

ABSTRACT: Compliance programs today are generally recognized as key weapons in the fight against corporate crime and wrongdoing. When the U.S. Sentencing Guidelines ("USSG") in 1991 instituted a carrot and stick approach to promote programs, and set out a rigorous definition, this triggered a strong focus on making such programs effective. The understanding of such programs shifted dramatically, from mere codes and lawyer lectures, to requiring the use of a full range of management techniques to prevent and detect misconduct. Governments, following the USSG's model, have used standards with structured flexibility to give strong guidance, but allow businesses the freedom to tailor their approaches. This trend follows the recognition of a fundamental point: Effective programs utilize the same management tools and techniques that all organizations utilize when there is any task they value and want to achieve. This is how organizations get things done. Without this level of commitment, the message just does not effectively reach people in companies.

Plus Factors and Agreement in Antitrust Law

Posted by D. Daniel Sokol

William E. Kovacic, George Washington University - Law School, Robert C. Marshall, Pennsylvania State University, College of the Liberal Arts - Department of Economic, Leslie M. Marx, Duke University - Fuqua School of Business, Economics Group and Halbert L. White, University of California, San Diego (UCSD) - Department of Economics examine Plus Factors and Agreement in Antitrust Law. Highly recommended.

ABSTRACT: Despite the crucial role of concerted action to collusion among rival firms, few elements are more perplexing than the design of evidentiary standards to determine whether parallel conduct stems from collective or from unilateral decision making. Courts allow a collusive agreement to be established by circumstantial evidence, but the evidence must show additional evidence — “plus factors” — beyond parallel movement in price. Chief plus factors identified by courts have included actions contrary to each defendant’s self-interest unless pursued as part of a collective plan, phenomena that can be explained rationally only as a result of concerted action, evidence that defendants created the opportunity for regulation communication, industry performance data that suggests successful coordination, and the absence of a plausible legitimate business rational for suspicious conduct.

The frailties of the existing analytical tests for assessing plus factors impede the economically sensible resolution of many high-stakes antitrust cases where decisions made on the issue of conspiracy are decisive and such inadequacies may be magnified in the future. No cases have offered useful operational means for determining when the defendants have engaged in something more than consciously parallel conduct. It is possible to improve on existing approaches by focusing more precisely on the forms of behavior that firms use to communicate their intentions and to execute the tasks needed to achieve coordination on pricing, output, and other dimensions of effective collusion. Case law addressing plus factors has not established a methodology for ranking plus factors according to their probative value. The authors believe that the actions of an explicit cartel, and the outcomes of those actions, should illuminate the path to identifying plus factors and that any of those actions that surely do not result from unilateral conduct should be given special attention. Further, courts and enforcement agencies cannot address the agreement in question without awareness of remedial issues that stand in the background. Courts are left with a conundrum because they cannot meaningfully instruct firms not to react to their rivals’ pricing. When firms in an industry are players in a repeated game with substantially incomplete and asymmetric information, courts can examine buyer actions to attempt to distinguish between conduct that is an agreement in violation of the Sherman Act and conduct that is not.

This Article offers a way to increase understanding of plus factors and to improve the manner in which enforcement agencies and courts interpret them in individual cases by advocating the use of basic probability theory to rank plus factors in terms of their probative value. It proposes a formal definition of plus factors, a taxonomy of plus factors, and a coherent methodology for ranking them in terms of their probative values. It also proposes that plus factors should be considered in constellations whenever such groups are present because the probative value of the group can be far greater than the individual plus factors in the group.

Vert-zonal Differentiation in Monopolistic Competition

Posted by D. Daniel Sokol

Francesco Di Comite (Economics School of Louvain), Jean-Francois Thisse (Economics School of Louvain) and Hylke Vandenbussche (Economics School of Louvain) have written about Vert-zonal Differentiation in Monopolistic Competition.

ABSTRACT: The pattern of trade observed from firm-product-country data calls for a new generation of models. To address the unexplained variation in the data, we propose a new model of monopolistic competition where varieties enter preferences non-symmetrically, capturing both horizontal and vertical differentiation in an unprecedented way. Together with a variable elasticity of substitution, competition effects, varying markups and prices across countries, this results in a tractable model whose predictions differ from existing ones. Using the population of Belgian exporters, our model succeeds in explaining the hitherto unexplained variation. The implications call for a re-thinking of earlier results and measurement practices.

Bank Competition and Financial Stability: A General Equilibrium Exposition

Posted by D. Daniel Sokol

Gianni De Nicolo (IMF) and Marcella Lucchetta (University Ca’ Foscari) analyze Bank Competition and Financial Stability: A General Equilibrium Exposition.

ABSTRACT: We study versions of a general equilibrium banking model with moral hazard under either constant or increasing returns to scale of the intermediation technology used by banks to screen and/or monitor borrowers. If the intermediation technology exhibits increasing returns to scale, or it is relatively efficient, then perfect competition is optimal and supports the lowest feasible level of bank risk. Conversely, if the intermediation technology exhibits constant returns to scale, or is relatively inefficient, then imperfect competition and intermediate levels of bank risks are optimal. These results are empirically relevant and carry significant implications for financial policy.

Bank competition and stability: cross-country heterogeneity

Posted by D. Daniel Sokol

Thorsten Beck (Tilburg), Olivier De Jonghe (Tilburg) and Glenn Schepens (Ghent) address Bank competition and stability: cross-country heterogeneity.

ABSTRACT: This paper documents a large cross-country variation in the relationship between bank competition and stability and explores market, regulatory and institutional features that can explain this heterogeneity. Combining insights from the competition-stability and regulation-stability literatures, we develop a unied framework to assess how regulation, supervision and other institutional factors may make it more likely that the data favor the charter-value paradigm or the risk-shifting paradigm. We show that an increase in competition will have a larger impact on banks’ risk taking incentives in countries with stricter activity restrictions, more homogenous market structures, more generous deposit insurance and more effective systems of credit information sharing.

Who Is Hurt by E-commerce? Crowding out and Business Stealing in Online Grocery

Posted by D. Daniel Sokol

Andrea Pozzi (EIEF) asks Who Is Hurt by E-commerce? Crowding out and Business Stealing in Online Grocery.

ABSTRACT: I study the impact of e-commerce on competition in retail markets. Using scanner data from a large chain that markets grocery online and through traditional stores, I illustrate that selling online reduces the barrier of geographic differentiation and allows stealing business from competitors. Between 60% and 70% of the sales made online by the chain are stolen from other grocers, the rest coming from self cannibalization. I show that small stores are suffering the largest losses from this reallocation of market shares, as they were more heavily relying on geographic differentiation to survive the competitive pressure of big-box stores.