Friday, May 25, 2012
Posted by D. Daniel Sokol
Wouter P. J. Wils - King's College London - School of Law; European Commission describes The Oral Hearing in Competition Proceedings Before the European Commission.
ABSTRACT: This paper deals with the (formal) oral hearing in competition proceedings conducted by the European Commission for the enforcement of Articles 101 and 102 TFEU (antitrust proceedings) and under the EU Merger Regulation (merger proceedings). It analyses the legal basis and the nature and purpose of the oral hearing, examines who can request an oral hearing, and who can attend and speak at the oral hearing, compares the oral hearing with state of play meetings, and provides some general observations as to what factors may make addressees of a statement of objections decide in favour or against requesting an oral hearing.
Posted by D. Daniel Sokol
Angela Huyue Zhang University of Chicago - Law School asks The Single Entity Theory: An Antitrust Time-Bomb for Chinese State-Owned Enterprises?
ABSTRACT: In five recent cases involving the acquisitions of European companies by Chinese state-owned enterprises, the European Commission has delved deeply into the relationship between Chinese state-owned enterprises and the wider Chinese State. A common issue in these cases was: did the notifying state-owned enterprise operate independently of the Chinese State or was there scope for the Chinese State to coordinate the behaviour of the notifying enterprise and other state-owned enterprises in the same sector and should they therefore be treated as part of a single entity for the purpose of merger analysis?
To provide an in-depth analysis of this issue, this article first reviews the historical development of the reform of state-owned enterprises and examines their current corporate governance structure. By applying the economic theory of the firm to understanding the concept of undertaking under the EU Merger Regulation, this article reveals the flaws in the European Commission's analysis of this issue. As the single entity theory can be used as both a shield and a sword, the European Commission’s decision on this issue will have far reaching implications for future antitrust cases involving Chinese state-owned enterprises.
Posted by D. Daniel Sokol
Thomas F. Cotter, University of Minnesota Law School has written on Innovation and Antitrust Policy.
ABSTRACT: In this chapter from the forthcoming Oxford Handbook on Antitrust Economics (Roger D. Blair & D. Daniel Sokol eds. 2012), I argue that antitrust can play a limited but non-negligible role in fostering innovation in three principal ways. First, and as a general matter, antitrust promotes innovation when it performs its traditional role of penalizing practices such as horizontal price fixing and other anticompetitive practices that offer no plausible procompetitive justification, even when such practices happen to involve intellectual property rights (IPRs). As a general matter, in other words, antitrust should avoid IP exceptionalism. Second, however, in some limited contexts, antitrust should deviate from this general standard by showing greater leniency toward joint conduct, for example on the part of standard setting organization members, that is intended to make new technology more widely available. Third, in yet more limited contexts, antitrust should deviate from the general standard in the opposite direction, by playing a more aggressive role in circumstances in which the conduct at issue poses even an objectively small risk to future innovation, if that risk (should it come to pass) threatens substantial social harm, and decisionmakers can be confident that the potential procompetitive benefits of tolerating the conduct at issue are only modest. For the most part, however, to the extent patent and other IP laws are perceived as conferring excessive protection or otherwise as undermining, rather than advancing, their stated purpose of promoting the progress of science and the useful arts, reform must come from the IP side, not the antitrust side. Antitrust’s role in promoting innovation is important but nevertheless constrained by the limited reach of the statute and by courts’ competence to second-guess legislative judgments about the appropriate scope of IPRs.
Thursday, May 24, 2012
Posted by D. Daniel Sokol
Despoina Mantzari & Valentine Korah (UCL) discuss It Takes One to Tango: The Single U.K. Competition and Markets Authority.
ABSTRACT: The focus on good institutional design, as an important component of strong competition policy and enforcement, has become a priority of antitrust agencies around the globe. Both the "external design" of the agency, i.e. the place the authority occupies in the administrative structure of a state and the "internal design," i.e. the system and procedures for antitrust enforcement and for the development of competition advocacy have been the subject of deliberation among trans-governmental participants in networks (i.e. the ICN, the ECN, and the OECD). In the research community, the work of industrial organization and developmental economists on the relationship between competition and productivity growth has been further enriched by the recognition that institutions and their performance also affect society's ability to generate economic growth. The U.K. competition regime is widely perceived as one of the best in the world and could not remain inattentive to calls for growth, particularly in the aftermath of the financial crisis. Improvements in its institutional performance and the level and length of decision-making were envisaged as fundamental to the Government's strategy to support the recovery of the economy and the country's prosperity. Following a lengthy consultation process, the Government decided to go down the path of institutional reform, by announcing the merger of the two principal U.K. competition authorities, i.e. the Office of Fair Trading ("OFT") and the Competition Commission ("CC"), into a single Competition and Markets Authority ("CMA"), to be fully operational by April 2014. Changes are being introduced also to each of the regimes for antitrust, mergers, and markets, aiming to improve the robustness of decisions and to streamline the regime.
Such radical institutional changes are hard to accomplish. Partly because institutions are path dependent, and partly because any change in the status quo involves costs, actors are not attracted to an alternative institutional arrangement, even if it may provide higher aggregate returns in the long run. Furthermore, because "institutions work in complex ways akin to an ecosystem," interference in the operation of one body may affect the working of another body. Nevertheless, it will be shown that the proposed merger is not followed, at least at this stage, by profound changes in the decision-making process of the two institutions; a fact that mitigates the risk of externalities to the judicial bodies of the U.K.'s competition landscape. Overall, the institutional reform falls short of the expectations of a watershed event, rather suggesting the symbiosis of the two authorities under a single roof.
Given the breadth of the developments we will not discuss each of them in detail, but rather concentrate on certain features of the CMA, which may render the symbiosis and interaction with other bodies of the U.K.'s competition ecosystem less harmonious.
Posted by D. Daniel Sokol
Zhiyong Liu, Indiana State University - Scott College of Business and Yue Qiao, Shandong University describe Abuse of Market Dominance Under China’s 2007 Anti-Monopoly Law: A Preliminary Assessment.
ABSTRACT: In this article we introduce the abuse of dominance provisions in China’s Anti-monopoly Law (AML) that was enacted in 2007, and we put this in context by briefly describing the laws on the abuse of dominance that existed before the AML, and their relationship with the provisions in the AML. We then discuss the interpretation and enforcement of the AML’s abuse of dominance provisions; on the one hand generally in the context of China’s new market competition environment and its political-legal system, and on the other hand specifically through a consideration of some recent antitrust cases on the abuse of market dominance. Finally, we offer a preliminary appraisal of the law and its enforcement.
Posted by D. Daniel Sokol
Jess Cornaggia, Indiana University Bloomington - Kelley School of Business, Xuan Tian, Indiana University - Kelley School of Business and Brian Wolfe, Indiana University ask Does Banking Competition Affect Corporate Innovation?
ABSTRACT: We exploit the deregulation of interstate bank branching laws to test whether banking competition affects corporate innovation. We find robust evidence that banking competition in corporations’ headquarter states causes corporations to produce fewer patents and patents with fewer citations. One explanation for this negative relation is that banking competition could enable small, innovative firms to secure bank financing at a lower cost instead of being acquired by corporations. Consistent with this hypothesis, we find evidence that banking competition reduces the supply of innovative targets, generating an apparent reduction in corporate innovation. Overall, these results uncover a surprising effect of banking competition and shed light on the determinants of corporate innovation.
Posted by D. Daniel Sokol
The OECD has posted Key Points on Procedural Fairness and Transparency.
ABSTRACT: How important is procedural fairness and transparency in competition enforcement proceedings to ensuring citizens’ confidence and belief in a fair and legal system and in those applying the law? What benefits arise for enforcement agencies from a fairer and more transparent enforcement process? The OECD published on Monday 30 April 2012 its Key Points on Procedural Fairness and Transparency, a publication which summarises three roundtable discussions held on the topic during 2010 and 2011. This publication, which includes an introduction to the topic by Sharis A. Pozen as well as the executive summaries, and summaries of the discussion of the roundtables, is available here.
Posted by D. Daniel Sokol
Pierre Larouche, Tilburg Law and Economics Center (TILEC), explores Legal Emulation between Regulatory Competition and Comparative Law.
ABSTRACT: This paper puts forward an alternative path, next to regulatory competition models and comparative law endeavors, called legal emulation. Regulatory competition suffers from its very restrictive assumptions, which make it a relatively rare occurrence in practice. It is also endogenously driven, ignoring legal change brought about from within the law, and it takes an impoverished view of law. As for comparative law, it has tended to remain mostly mono-disciplinary. It usually lacks a dynamic dimension. Legal emulation tries to combine the more dynamic perspective of regulatory competition, with the endogeneity of comparative law. It rests on a theoretical perspective whereby the law is conceived as the outcome of a series of choices – substantive or institutional, fundamental or transient – made between different options (legal science would then be the investigation of the set of those choices). The paper provides an outline of the legal emulation model. Legal emulation ties together and explains a number of existing phenomena in many legal orders, such as constitutional, EU or human rights review; impact assessment; peer review within networks of authorities; or the open method of coordination. Finally, the paper outlines some consequences of adopting a legal emulation model.
Wednesday, May 23, 2012
Posted by D. Daniel Sokol
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Posted by D. Daniel Sokol
Margaret Wang (Freshfields) has written on China's Current Approach to Vertical Arrangements Under the Anti-Monopoly Law.
ABSTRACT: Traditionally in competition law, vertical arrangements (where parties to the transaction or agreement in question are active up and downstream of each other) are normally subject to a lower level of scrutiny compared with horizontal arrangements. Some jurisdictions have even taken the policy decision not to subject vertical arrangements to the reach of competition law. For instance, the United Kingdom until recently had in place an exemption for vertical agreements. This approach is also proposed under the hotly anticipated Hong Kong Competition Bill. The position in China is, however, different. Under the Chinese Anti-monopoly Law (“AML”), the legislation expressly seeks to regulate agreements involving undertakings operating at different levels of the value chain, and this is reinforced in regulatory guidance. The merger control provisions make no distinction as to horizontal, vertical or conglomerate mergers, and in practice, the Ministry of Commerce (“MOFCOM”) has indeed imposed remedies in two cases involving vertical mergers.
This article summarizes the extent to which vertical arrangements have been scrutinized by antitrust regulators, and instances where they have been challenged in the private sphere.
Posted by Marvin Ammori
Thanks so much to Daniel for hosting this wonderful online symposium.
I want to just clarify the two aspects of Google critics' search neutrality arguments.
First, some suggest Google does or could demote the search placement of particular companies. Mark Patterson asks us to speculate that Google might deliberately decide to demote particular sites. Foundem in the UK claims that Google "punished" Foundem in search rankings because Foundem competes with Google. (As noted in our conference paper, some point out that Foundem had won some awards, others have responded that Foundem is evidently a spammy site that does not follow basic search engine optimization.) Patterson suggests we need to see Google's algorithm because perhaps Google engineers might target a site.
Second, some criticize Google's move, in 2007, from ten blue links on a display page to displaying results in a "universal search" display that includes results from Google News, Google Maps, Google Places, and Google Travel. Google claims that it can better organize results for users and attempt to compete and do search better than competitors; competitors argue that Google is advantaging its specialized properties through dominating general search.
The disclosure remedies might be the most sensible of all those proposed, but they are based primarily on conjecture. Regarding the "demoting" of sites, there is very little evidence that Google actually does this. Foundem is the main example--and Google rebuts that minimal evidence with the credible argument that Foundem is not worthy of better placement. Patterson, in his thoughtful summary post, merely proposes a hypothetical, rather than marshaling any real evidence. Regarding the "promotion" of Google Travel and Google News and Google Maps, disclosure has no effect because nothing is hidden. Everyone can see that Google has moved to "universal search"--and that so has Microsoft's Bing. Google can credibly argue that it has a pro-consumer reason for the four-year old change, but nobody can credibly argue that Google is hiding the fact.
Even if Google engineers were targeting Foundem, the government's ability to define a search neutrality standard (see Grimmelmann) and to implement the remedy (see my paper with Luke Pelican) make me skeptical that the remedies proposed so far, beyond the disclosure resting on conjecture, would actually further consumer welfare, competition, and innovation in search.
Posted by D. Daniel Sokol
Marc Winerman, Federal Trade Commission and William E. Kovacic, George Washington University - Law School discuss Outpost Years for a Start-Up Agency: The FTC from 1921-1925.
ABSTRACT: The challenges and questions surrounding the design of a competition system are part of an identifiable life cycle that characterizes the development of a competition agency. The core challenges are to set priorities and execute them, but there are various potential obstacles. This article looks at the FTC’s experiences in its first decade, a period bringing extraordinary technological dynamism that reshaped the U.S. economy and transitions in political leadership, to shed light on how a new or reformed agency might go about facing predictable problems in its first years and to suggest how these agencies can improve their effectiveness.
New institutions like the FTC are shaped by the socio-political context that leads to their formation. Interested parties had multiple conceptions about the FTC’s purpose and differing expectations as to its use when the FTC was formed. Law enabling competition systems generally embodies a mix of objectives and policy aims that the new agency must reconcile. Some of the most daunting tasks for the leadership of these institutions is to identify the multiple policy impulses that brought the agency to life; to assess the relative intensity and importance of individual ideas; and to formulate a program that is coherent, faithful to its original aims, and adaptable to political and intellectual changes. External stakeholders who impose demands on new agencies and political transitions complicate these tasks.
The FTC was in some ways poorly organized to meet the challenges of its first decade due to its lack of centralized leadership and small staff. However, it still addressed tough issues in the emerging economies of the 1920s, in part by establishing many of its critical elements. First, the development of an administrative adjudication process helped make the FTC an influential competition policy tribunal. Also, the completion of studies examining competitive conditions in one or more industries was part of the FTC’s broad program to address competitive problems and led to FTC litigation, referrals to the Department of Justice, and legislative proposals. A final element was outreach through the introduction of “trade practice submittal,” which permitted the FTC to meet representatives of industries and formulate rules that formally expressed judgment on the industry.
In part because it was stretched too thin by its inability to set priorities and it faced a hostile judiciary, the FTC often failed to implement its plans for a successful enforcement program. Its problems were compounded by inadequate articulation of the rationales for its early orders and for its decision not to prosecute. The FTC’s challenges in setting priorities and executing its goals in the face of early challenges may serve as a cautionary lesson for other new agencies.
Posted by Adam Thierer
I enjoyed the entries in this symposium and learned something from each of them. I have a few things to say in response to both Frank Pasquale and Eric Clemons and their sweeping indictments of not just Google but seemingly the entire modern information economy.
Everywhere they look, it seems, Pasquale and Clemons see villainy. Someone completely alien to the modern online ecosystem would read Pasquale’s description of it -- “digital feudalism,” “absolute sovereignty,” “opaque technologies,” “leaving users in the dark,” etc., etc. -- and likely conclude that a catastrophe had befallen modern man. Of course, Pasquale’s narrative is missing any reference to the unparalleled expansion in the stock of knowledge and human choices that has been made possible by Google and the others companies he castigates (Apple, Facebook, Twitter, and Amazon). Meanwhile, Clemons wants to group Google in with supposed Wall Street robber barons as well as characters from Sinclair’s “The Jungle.” It’s all a bit much.
Regardless, what about those high-tech feudal lords, especially Google? Can we keep their market power in check without extreme steps? It goes without saying that neither Pasquale nor Clemons places much faith in the sort of dynamic, disruptive competition and creative destruction (which I documented in my entry in the ) as being an effective check on market behavior. But their skepticism goes well beyond that and transcends tradition antitrust analysis. They seem to assert that we just can’t trust large digital intermediaries at all, primarily because they are profit-maximizers. Clemons suggests that paid search shouldn’t even be permitted, which is a bit like saying ad-supported, for-profit newspapers should have been forbidden or regulated long ago.
Their skepticism about concentrated power fades quickly, however, when it’s the concentrated power of government that will be calling the shots in the digital economy. Regulators, Pasquale says, will be able to devise forms of redress that “help us confront issues of discrimination, malfeasance, nonfeasance, and technological due process in a rapidly changing online environment.” He suggests transparency mandates, external regulatory oversight, and that something akin to a mandatory right of reply for search results are all needed. Meanwhile, Clemons wants full-blown structural separation of Google into three or four different firms.
Pasquale and Clemons don’t bother addressing the trade-offs associated with their proposals. They apparently want us to imagine that these proposed remedies are innocuous and costless. They also don’t seem to give much weight to the critiques set forth by Marvin Ammori, James Grimmelman, or Dan Crane regarding the incoherent and potentially counter-productive nature of “search neutrality” remedies. Clemons also doesn’t seem at all worried about the forgone benefits of vertical integration, even though those benefits can be substantial in the field of search. The rich content and specialized integrated services that Google has been able to freely offer consumers deserve greater consideration before imposing the nuclear option of structural separation.
That last point is essential. We can’t divorce this discussion from the real-world evidence of just how well consumers have been served by the search market today. That begins with the fact that consumers don’t pay a penny for the cornucopia of content or expanding universe of constantly innovating services that they enjoy currently. So, to repeat what I said in my initial entry, the traditional goals of public utility regulation -- universal service, price competition, and quality service -- are already being achieved quite nicely without intervention. That makes the case for search regulation even harder to sustain.
Finally, let’s just talk about the practicality of all the regulation they advocate. Pasquale asks: “Is it too much to ask for some entity outside Google to be able to ‘look under the hood’ and understand what is going on in plausibly contested scenarios?” Well, perhaps it is! The respected blog SearchEngineLand has estimated that approximately 34,000 searches are conducted per second (or 2 million per minute; 121 million per hour; 3 billion per day; 88 billion per month). That’s a lot of activity for regulators to keep tabs on. And Google’s search algorithm is constantly being tweaked-- more than 500 changes each year -- to offer websurfers improved results and enhanced security against spammers and other malicious activity. Having regulators constantly “looking under the hood” and trying to adjust those results via a political process would likely slow innovation to a crawl. It would also open up the process to a great deal of gaming by other parties -- including spammers and scammers. Moreover, the dangers of political gaming of search should not be discounted. Once policymakers have the sort of authority over search that Pasquale and Clemons recommend, the danger of political influence and regulatory shenanigans both grow exponentially.
In the end, I believe the combination of public pressure, social norms and, most importantly, ongoing innovation and creative destruction, can do a better job of protecting consumer welfare than the sort of sweeping regulatory interventions that Pasquale and Clemons advocate. We should be patient and see how this marketplace develops instead of engaging in rash interventions.
Posted by D. Daniel Sokol
James E. Prieger, Pepperdine University - School of Public Policy and Wei‐Min Hu, Pepperdine have written on Applications Barrier to Entry and Exclusive Vertical Contracts in Platform Markets.
ABSTRACT: Our study extends the empirical literature on whether vertical restraints are anticompetitive. We focus on exclusive contracting in platform markets, which feature indirect network effects and thus are susceptible to an applications barrier to entry. Exclusive contracts in vertical relationships between the platform provider and software supplier can heighten entry barriers. We test these theories in the home video game market. We find that indirect network effects from software on hardware demand are present, and that exclusivity takes market share from rivals, but only when most games are nonexclusive. The marginal exclusive game contributes virtually nothing to console demand. Thus, allowing exclusive vertical contracts in platform markets need not lead to domination by one system protected by a hedge of complementary software. Our investigation suggests that bargaining power enjoyed by the best software providers and the skewed distribution of game revenue prevents the foreclosure of rivals through exclusive contracting.
Posted by Mark Patterson
Much of the disagreement in this blog symposium seems to arise from different assumptions regarding what Google might have done. Is the concern merely that Google has provided “non-neutral” results, but in a way that can be defended as at least intended to serve users (James Grimmelmann, Daniel Crane, Eugene Volokh)? Or is it that some of Google’s search results might be altered purely to gain a competitive advantage (Frank Pasquale, Allen Grunes, Mark Patterson)? The recent actions by the agencies in the U.S. and the EU suggest that they, at least, think the concerns are serious.
Suppose, sharpening the hypotheticals of Pasquale and Grunes, that behind Google’s closed doors, its search engineers said things like “Yes, I know site A is better, but we’ll downgrade it because it’s becoming a potential threat to us.”
This hypothetical is worth considering because Google’s search decisions are made behind its closed doors. For that reason, it’s easy to assume that it doesn’t make them for anticompetitive reasons. And maybe it doesn’t. But unlike other antitrust exclusion cases, where refusals to deal and exclusive contracts take place in public markets, exclusion by Google would never come to light without an investigation. In this respect, it’s interesting that for its Google inquiry the FTC has hired Beth Wilkinson, an attorney with experience in internal corporate investigations.
Some of the contributors to this symposium (Adam Thierer, Marvin Ammori, Mark Jamison) suggest that anticompetitive actions by Google would be constrained by competition. But what if, as Patterson suggests might be possible, another Google engineer responded to the statement above with “OK, but don’t downgrade site A so much that it will be obvious. Just do it enough to hurt.”
It seems to me that these facts, if they were real, could make out an antitrust violation. The conduct would be exclusionary, it would be anticompetitive in the sense that consumers would be injured (even if they didn’t know it), and it would lack a legitimate business justification.
But what about the First Amendment? I’m not sure that Eugene Volokh believes that downgrading results as this hypothetical suggests would be protected speech, given that he relies on the assumption, which would be false on these hypothetical facts, that search engines “aimto give users what the search engine companies see as the most helpful and useful information.” Regardless, I’m confident that antitrust courts would have no trouble with the First Amendment on those facts. The white paper by Volokh and Donald Falk appears to concede that if speech is not the exercise of editorial judgment, then antitrust can step in, as in Lorain Journal (and in other cases not mentioned in the white paper, like Providence Journal and the cases arising from the AMA’s campaign against chiropractors).
It’s true, of course, that a case against Google, even on the facts hypothesized here, would be challenging. Whether such conduct would be sufficiently exclusionary to bring Sherman Act § 2 or Article 102 TFEU into play is a difficult question (Marino Lao, Ammori). Devising remedies would be problematic (Pasquale, Patterson, Eric Clemons). And more ambiguous conduct might not be illegal (Grimmelmann, Crane, Thierer).
In the end, though, it seems that given how little we know about what goes on behind those closed doors at Google and given that recent events give us little reason to trust it, it is worth considering how antitrust might respond to anticompetitive conduct. It’s remarkable to see scholars dismissing antitrust concerns without even knowing what facts the investigations will reveal.
Do Developing Countries Enforce Their Antitrust Laws? A Statistical Study of Public Antitrust Enforcement in Developing Countries
Posted by D. Daniel Sokol
Dina I. Waked, Harvard Law School asks Do Developing Countries Enforce Their Antitrust Laws? A Statistical Study of Public Antitrust Enforcement in Developing Countries.
ABSTRACT: This paper presents a statistical study of public antitrust enforcement in developing countries. It illustrates what really happens with antitrust laws in developing countries after they are put into force. Counter to predictions predominant in the literature, this research shows that developing countries do enforce their antitrust laws with a trend to increase enforcement over time. This disqualifies arguments that developing countries only adopt antitrust laws to signal compliance to donor institutions and to secure trade deals with no real intention to enforce these adopted legislations. It also shows that collecting enforcement data for developing countries is a practicable undertaking. The paper puts together an original dataset that can be complemented and refined by researchers interested in studying actual antitrust enforcement instead of relying on ready-made proxies. In this research 20 antitrust enforcement variables for 50 developing countries over a mean period of 10 years were collected. The data presented here also allows an in-depth look at the activities of antitrust authorities across developing countries. It highlights activities particular to developing countries’ antitrust enforcement, it shows in detail what activities are performed at these public authorities and allows an observation of the varying intensities of enforcement not only across countries but also within the same country. With the help of this dataset the relationship between the enforcement data collected in this research and the ready-made proxies frequently used to measure antitrust enforcement in developing countries is analyzed. The results show that many of these widespread measurements are not associated with the different aspects of the enforcement process.
Posted by D. Daniel Sokol
Bruce Lyons (CCP, Univ. of East Anglia) asks Will the New U.K. Competition and Markets Authority Make Better Antitrust Decisions?
ABSTRACT: I focus in this paper on institutional change and decision making in the new CMA. There are also other important changes to U.K. competition law, including the removal of "dishonesty" as a requirement for the criminal offense in cartels-it will be replaced by appropriate publication of detailed arrangements as a defense. This, and numerous other relatively small modifications, typically move competition policy in the right direction. Another example is that the primary duty of the CMA will be "to promote effective competition in markets, across the UK economy, for the benefits of consumers." This is a very positive and clear mission statement. But to understand the potential effectiveness of the CMA, we need to understand the organizations that are being merged. The CC and OFT are very different animals.
Posted by D. Daniel Sokol
Damien Geradin, Covington & Burling LLP & Tilburg University, Anne Layne-Farrar, Compass Lexecon, and Nicolas Petit, University of Liege have a new treatise on EU Competition Law and Economics.
ABSTRACT: This is the first EU competition law treatise that fully integrates economic reasoning in its treatment of the decisional practice of the European Commission and the case-law of the European Court of Justice. Since the European Commission's move to a "more economic approach" to competition law reasoning and decisional practice, the use of economic argument in competition law cases has become a stricter requirement. Many national competition authorities are also increasingly moving away from a legalistic analysis of a firm's conduct to an effect-based analysis of such conduct, indeed most competition cases today involve teams composed of lawyers and industrial organisation economists.
Competition law books tend to have either only cursory coverage of economics, have separate sections on economics, or indeed are far too technical in the level of economic understanding they assume. Ensuring a genuinely integrated approach to legal and economic analysis, this major new work is written by a team combining the widely recognised expertise of two competition law practitioners and a prominent economic consultant. The book contains economic reasoning throughout in accessible form, and, more pertinently for practitioners, examines economics in the light of how it is used and put to effect in the courts and decision-making institutions of the EU. A general introductory section sets EU competition law in its historical context. The second chapter goes on to explore the economics foundations of EU competition law. What follows then is an integrated treatment of each of the core substantive areas of EU competition law, including Article 101 TFEU, Article 102 TFEU, mergers, cartels and other horizontal agreements and vertical restraints.
Tuesday, May 22, 2012
Posted by D. Daniel Sokol
The blog symposium of antitrust law and economics regardong online search issues over the past two days has been great. To review the posts, please see the links below:
● Mark Jamison, University of Florida, Warrington College of Business
● Adam Thierer, George Mason
● Eric Clemons, Wharton School of the University of Pennsylvania
● Dan Crane, Michigan Law School
● James Grimmelman, New York Law School
● Marina Lao, Seton Hall
● Bob Litan, Kauffman Foundation
● Eugene Volokh, UCLA
● Marvin Ammori, Center for Internet and Society at Stanford Law School
● Mark Patterson, Fordham Law
● Frank Pasquale, Seton Hall
● Allen Grunes, Brownstein Hyatt
Tomorrow I invite the posters to comment.
Search, ‘Essential Facilities,” and the Duty to Deal
Posted by Marina Lao (Seton Hall)
Do the essential facilities doctrine and the antitrust duty to deal provide an antitrust basis to prohibit search “bias,” as some have suggested? In antitrust discourse, search bias is generally understood to mean a search engine’s favoring its own content over that of a competitor in an adjacent market in the organic search results. It would, for example, involve Google automatically returning a Google map in response to a search for “McDonald’s,” suggesting that the user wants directions, instead of applying some sort of “neutral” standard to determine whether a Mapquest or Bing map should be displayed instead. In an article on “Search, Essential Facilities, and the Duty to Deal” that I hope to be able to post on ssrn shortly, I argue that these principles simply do not “fit” in the search context.
The desire to invoke the duty to deal and essential facility is understandable, since Section 2 of the Sherman Act requires not only possession of monopoly power but also exclusionary conduct. And, seeking the competitive advantages that flow to a firm from integration, alone, is not considered exercise of monopoly power in an antitrust sense. In other words, absent an antitrust duty to deal (whether or not involving an essential facility), Google’s favoring its own content would not constitute exclusionary conduct that could give rise to Section 2 liability. I focus my comments only on Google, though all three major search engines tend to give preference to their own content, because Bing and Yahoo! do not have sufficient share of the general search traffic to have any Section 2 exposure.
Even before Trinko expressed its disfavor of the essential facility doctrine, courts have only sparingly applied it to mandate access. Thus, “essentiality” is strictly construed. Alaskan Airlines and other cases have said that a facility controlled by a single firm will be deemed essential only if control “carries with it the power to eliminate competition in the downstream market.” This strict construction is appropriate since antitrust law generally expects firms to compete with their own resources, not a competitor’s. In my article, I discuss in more detail why Google’s search engine could not reasonably be considered critical to competitive viability in a vertical market. While being visible via a search engine’s organic results is obviously a very attractive way to reach potential customers, it is not essential. There are other ways to reach potential customers, though they may not be as good as being included in the search results, and certainly not free.
Another problematic issue is that there may not be any denial of access in the first place. Denial of access is usually a non-issue in most essential facility cases--the monopolist has either denied access or it hasn’t. But, in the situations where a Google rival is said to be “denied access” and foreclosed from competition, the competitor websites are, in fact, still readily accessible to anyone using various keywords on Google search. For example, enter “map sites” into the Google search box, and Mapquest will top the organic results returned by Google. It is just that, for certain queries, Google may list its own content prominently whereas a rival site might not be shown or is lower in the rankings. For example, search for “McDonald’s,” and a Google map will appear first in the search results, followed by a link to Mapquest. Thus, the implicit premise of the complaints about denial of access seems to be that the organic results list is the alleged essential facility, and that access requires nothing less than having access to high ranking for any search term that might reasonably direct traffic to the competitor site. Given how strictly “essentiality” is defined, there is no basis for construing denial of access this broadly.
This takes us to a related issue that is often overlooked, and that is the feasibility of sharing of the facility (or “nonrivalrousness”). The essential facility doctrine does not require a monopolist of even a clearly essential facility to “share” it with rivals if sharing would be impractical or would detract from the monopolist’s use. In the case of search, is sharing possible? It depends on which is the alleged essential facility. If it is the search engine, then of course it can be shared but, in that case, there is no denial of access. If the ranked results list is alleged essential facility, and being denied a coveted top ranking is the alleged denial of access, then the “facility” is not nonrivalrous—there is only one top rank and so forth. In that case, it would seem that Google would have no antitrust obligation to give up any top slot in the results to a competitor if it needs those slots for its own promotion. The law is quite clear that the monopolist does not have to step aside to let a competitor use an essential facility if the facility cannot accommodate both. And, if there is no obligation to do that, there would logically be no need to adopt some “neutral” standard to allocate the scarce resource.
These are but a few intractable conceptual problems with trying to fit the essential facility doctrine to search that I raise in my article. Finally, I do not mean to suggest that how Google runs its search engine can never give rise to antitrust liability. My point is merely that search bias, or a search engine’s favoring its own content, alone cannot provide the basis for section 2 liability. If there were evidence, for example, that Google specifically demoted a website for doing business with Google’s rival, such as for advertising on Bing or Yahoo!, that would go beyond a pure refusal to deal and would be more akin to Lorain Journal.