Antitrust & Competition Policy Blog

The Extraterritorial Effect of Antimonopoly Law

Posted by D. Daniel Sokol

Kai Zhang (Southwest University of Political Science and Law, China) describes The Extraterritorial Effect of Antimonopoly Law.

ABSTRACT: Monopoly refers to the phenomenon whereby a specific person or enterprise accrues substantial profits by controlling the production and selling of a particular commodity. International monopolies occur when an enterprise gains control of a commodity's production and sales on a global scale. When capital becomes centralized and monopolies are formed in domestic markets, there is a strong likelihood that the monopoly will spread internationally. As a result, there will be global centralization of capital and international monopolization in which individual enterprises dominate more of the market and earn more profits.

To avoid the development of international monopolies, many countries have recognized the extraterritorial effect in antimonopoly case laws in order to protect and improve the comprehensive competitiveness of their native enterprises. Some examples of these antimonopoly laws include the U.S. Sherman Act, the 85th and 86th article of the European Treaty of Rome, and the 98th article of the German Law of Forbidden Competition. Countries design legislation to protect their own interests. The extraterritorial effect of antimonopoly laws thus has a significant history in many countries.

This article examines the extraterritorial effect of antimonopoly laws in the United States and European countries, discusses relative theories, and suggests ways of resolving conflicts between country-specific laws through an analysis of specific examples.

Why a Reduction in Health Care Costs Per Se May be a Misleading Policy Objective

Posted by D. Daniel Sokol

Rosa Abrantes-Metz (Global Economics Group) explains Why a Reduction in Health Care Costs Per Se May be a Misleading Policy Objective.

ABSTRACT: There is nearly universal agreement that a restructuring of the health care system is required, particularly with regard to the public financing of health care. Longevity has greatly increased, and the current public health care programs are not designed to sustainably afford such life-long additional expenses. But the policy discussions are almost always in terms of the total cost of health care, which is not, per se, a socially useful metric. Costs can rise for a number of good, socially desirable reasons.

In this article I argue that, instead, policy should focus on the price per constant quality of health care. There are reasons to think that prices may be inefficient in this market, and there may be policy options that could address that. Allowing for interstate competition between insurance companies would likely reduce premiums and significantly reduce health care costs.

Still, even "reducing price" must be attempted judiciously. Measures punishing innovation may allow for lower prices in the present, but to the extent they discourage current R&D, they will represent a large social cost in the future.

Noll on the Rabbi Cartel

Posted by Roger Noll

The Rabbinical Assembly has issued a response to the NY Times article on Barak Richman and the Rabbi cartel.  In that response, the RA makes the following legal argument:

Professor Richman incorrectly attempts to apply antitrust concepts intended for the business marketplace to a religious movement. This crucial distinction was best characterized by Senator John Sherman the sponsor and namesake of the Sherman Antitrust Act, who stated that churches are not covered under this nation's antitrust laws: "I do not see any reason for putting in temperance societies any more than churches or school-houses or any other kind of moral or educational associations that may be organized. Such an association is not in any sense a combination or arrangement made to interfere with interstate commerce" (21 Cong.Rec. 2658-59 (1890).).

The key sentence is the last one:

Such an association is not in any sense a combination or arrangement made to interfere with interstate commerce.

Trade associations are (presumptively, at least) not made to interfere with interstate commerce and can serve valid purposes that raise no antitrust issues. But that does not mean that the organization can't be used for some other purpose that is anticompetitive.

The speech by Sherman was motivated by the claim that the actions of temperance societies to shut down sales of alcohol would violate the Sherman Act. A parallel today is attempts by some Christian churches to prohibit the sale of the "morning after" pill. The key here is that the goals of these organizations was legislation, not monopolization of a product. "Speech" to achieve a political end is not an antitrust violation, even if done by a trade association.

Carstensen on the Rabbi Cartel

Posted by Peter Carstensen

The Rabbinical Assembly has issued a response to the NY Times article on Barak Richman and the Rabbi cartel. In that response, the RA makes the following legal argument:

Professor Richman incorrectly attempts to apply antitrust concepts intended for the business marketplace to a religious movement. This crucial distinction was best characterized by Senator John Sherman the sponsor and namesake of the Sherman Antitrust Act, who stated that churches are not covered under this nation's antitrust laws: "I do not see any reason for putting in temperance societies any more than churches or school-houses or any other kind of moral or educational associations that may be organized. Such an association is not in any sense a combination or arrangement made to interfere with interstate commerce" (21 Cong.Rec. 2658-59 (1890).).

The challenge is not to the organization as such but to a practice that affects the market. The argument that not for profit organizations whether universities (U.S. v. Brown University, Oklahoma v. NCAA, etc.) or other NGOs(e.g., California Dental Association, American Bar Association, American Association of Law Schools, American Medical Association, etc.) are somehow categorically exempt is belied by the history of antitrust enforcement. Moreover, we all know the history of labor organizations in that period where Sherman and others opined that they would not be covered. Finally, what Senator Sherman said was that: "Such an association is not [in itself] in any sense a combination or arrangement made to interfere with interstate commerce." He was speaking to the basic nature of such entities and not to some specific commercial conduct that affects the market. In fact, I think that there were a couple of antitrust cases involved with the Kosher certification process.

So, the bottom line is that antitrust is concerned with how entities--for profit and not for profit--conduct themselves in the market when they engage in market affecting activities.

Sokol on the Rabbi Cartel

Posted by D. Daniel Sokol

I found the NY Times story profiling Duke antitrust law professor Barak Richman and the Conservative Movement's response interesting. I'll leave comments about the superficial Conservative Movement antitrust analysis to Roger Noll (Stanford) and Peter Carstensen (Wisconsin).  The point I want to raise is that Barak's concern is significant.

Let's be clear what the problem really is. Many smaller Conservative affiliated synagogue communities have trouble attracting Conservative Rabbis. For those of you who live in large metropolitan areas full of choices of conservative synagogues and Jewish institutions and who have never lived in a smaller Jewish community, let me explain the dynamics of a smaller Jewish community as someone who lives in a small (but thriving) one:

1. not many Jews
2. lack of significant Jewish social institutions (no JCC, no Federation, etc)
3. difficult access to kosher food
4. no Jewish Day schools
5. often lower pay and perks for Rabbis 

It takes a special kind of Rabbi to want to work in such communities. The Conservative Movement creates various barriers to entry to have Rabbis serve these communities.

One basic issue with any organization that creates a scheme to limit access (think Goldfarb or the NC Dental board litigation that the FTC has been pursuing recently regarding barriers to entry about teeth whitening -- and no, I am not an anti-dentite) is that they mask anti-competitive action through the need for some sort of professional certification. The religious overlay also creates issues regarding antitrust and Rabbis. In some cases the restraints are warranted but in others, less restrictive restraints are possible or the restraints may even be pretextual and the purpose of the restraint hurts consumers. I believe the Rabbi cartel is hurting Conservative Judaism.

It is not as if the Conservative movement has remained static over the years. What is mainstream in conservative Judaism (as well as other branches of Judaism) has gone through significant transformation in the past 40 years. If someone was trained at Hebrew Union, the Reform seminary, or the Reconstructionist Rabbinical College (located not too far from the childhood home of Barak), this should not preclude consideration from possible employment in a Conservative synagogue, especially since the Rabbi in question may be closer in theological beliefs at this point in their career to the Conservative movement that the branch in which they were ordained.

 

Looking for Sense in the Italian Antitrust Authority Decision in the Pfizer Xalatan Case

Posted by D. Daniel Sokol

Daniela Ampollini (Trevisan & Cuonzo) is Looking for Sense in the Italian Antitrust Authority Decision in the Pfizer Xalatan Case.

ABSTRACT: The January 2012 decision of the Italian Antitrust Authority ("IAA") in the Pfizer case, involving Pfizer's actions to counter the marketing of generic versions of its product Xalatan, has given rise to a debate which has hardly appeased. Many commentators have already provided their impression from a competition law perspective. I, a patent lawyer, will try to provide mine, starting from the meaning and function of the patent law categories involved.

Margin Squeeze: An Overview of EU and National Case Law

Posted by D. Daniel Sokol

Cento Veljanovski, Case Associates, Institute of Economic Affairs, Centre for Regulation and Market Analysis discusses Margin Squeeze: An Overview of EU and National Case Law.

ABSTRACT: This foreword reviews the law and economics of an anti-competitive margin squeeze adopted by European and national competition authorities together with a critical assessment of the European Court of Justice's Telia/Sonera judgment in early 2012.

ANTITRUST IN HIGH-TECHNOLOGY INDUSTRIES: A SYMPOSIUM INTRODUCTION

Posted by D. Daniel Sokol

Michal Gal (Haifa) and Spencer Waller (Chicago Loyola) discuss ANTITRUST IN HIGH-TECHNOLOGY INDUSTRIES: A SYMPOSIUM INTRODUCTION.

ABSTRACT: One of the most interesting and challenging phenomena of our information age is the rapid and significant change that takes place in high-technology industries. This change is shaking some of our assumptions regarding the role of technology (for example, endogenous or exogenous), productions methods (for example, commercial entities versus social communities), markets (for example, product or innovation markets), market characteristics (for example, network industries, faster information transfer to market players and consumers), and non-market management systems.1 It requires us to recognize the effects of such changes on the economic environment and to ensure that our regulatory tools secure the positive welfare effects that such changes can bring about. The articles in this special issue attempt to meet this two-pronged challenge and shed light on the implications of changes in the marketplace for both the market's invisible hand and the government's visible one. In particular, they address the over-arching concerns expressed by some commentators that competition law may not be sufficiently nimble or accurate to detect and remedy competition violations in more innovative industries.

EUROPEAN COMPETITION LAW, COMPULSORY LICENSING, AND INNOVATION

Posted by D. Daniel Sokol

Ariel Ezrachi (Oxford) and Mariateresa Maggiolino have a new paper on EUROPEAN COMPETITION LAW, COMPULSORY LICENSING, AND INNOVATION.

ABSTRACT: This article explores the interface between competition law and intellectual property rights and focuses on the analysis of refusal to license. The discussion highlights the gradual lowering of the threshold for intervention in cases of refusal to license and the widening scope of Article 102 of the TFEU. It subsequently reflects on the possible chilling effect that compulsory licensing may have on innovation.

ACCC Has an Excellent New Cartels Movie to Raise Awareness

Posted by D. Daniel Sokol

Caron Beaton-Wells (Melbourne) has via her blog noted that the ACCC has a new movie out to raise cartel awareness. The movie is 16 minutes long and worth watching it. Might it get higher ratings than such hit Australian shows like Neighbours?

 

The Distribution of Monopolistic Markups in the Polish Economy

Posted by D. Daniel Sokol

Jan Hagemejer, National Bank of Poland, University of Warsaw - Faculty of Economic Sciences Piotr Popowski, National Bank of Poland, The Distribution of Monopolistic Markups in the Polish Economy.

ABSTRACT: Estimates of monopolistic markups are relatively scarce in the literature mostly due to lack of appropriate data and methodological difficulties, while their behaviour has important implications for the conduct of monetary policy. We estimate the monopolistic markups in the Polish economy in the period of 1995-2009 using Polish firm level data. We show the association of the markup level with the sectoral characteristics, type of good produced and the form of ownership, as well as investigate the impact of both internationalization and competitive pressure on the level of markups. We show a somewhat puzzling and at the same time robust increase in markups after the EU accession of the Polish economy to the EU in 2004. Moreover, in line with previous findings, we show that price cost margins are countercyclical with respect to the macroeconomic cycle and procyclical at sectoral level.

Price Effects and Switching Costs of Airlines Frequent Flyer Program

Posted by D. Daniel Sokol

Claudio A. Agostini, Universidad Adolfo Ibanez Diego Inostroza, Manuel Willington, Universidad Alberto Hurtado discuss Price Effects and Switching Costs of Airlines Frequent Flyer Program.

ABSTRACT: Frequent flier programs create a switching cost for the consumer and allow firms to exercise market power. In Chile there is a dominant airline in domestic markets that has a frequent flyer program with a large number of affiliates and it faces some competition from two small carriers that do have a frequent flyer program. Using a unique dataset for Chile we estimate the switching cost of each airline and the impact of the dominant airline frequent flyer program on prices. The results show a fare premium of around 18% due to the frequent flyer program.

Ecuador’s New Anti-Monopoly Law: Promoting Fair Competition or Suppressing Political Opponents?

Posted by D. Daniel Sokol

Pallavi Guniganti, University of London - King's College London asks Ecuador’s New Anti-Monopoly Law: Promoting Fair Competition or Suppressing Political Opponents?

ABSTRACT: The recent enactment of the 'Ley de Control y Regulación del Poder del Mercado' (Law on Control and Regulation of Market Power) has drawn divergent reactions from commentators within and without Ecuador. While a domestic antitrust regime has long been anticipated in Ecuador, President Rafael Correa’s conflicts with the private media and the judiciary call into question the Law’s intended effect and fair enforcement.

Should Economic Theory Control Price Fixing Analysis?

Posted by D. Daniel Sokol

Malcolm Coate (FTC) asks Should Economic Theory Control Price Fixing Analysis?

ABSTRACT: At first glance, lawyers appear to remain in control of price fixing analysis. Agreements to raise price are per-se illegal, and the economist only seems needed to estimate damages. However, economic insights are relevant, as not all price fixing agreements are driven by pricing issues and some price agreements have to be inferred from the totality of the evidence. In a few recent papers, authors argue for increasing the role of economic theory, with the potential to transform the process into a question of economics.

Looking over the case law, it appears clear that the common law process has evolved efficiently to slowly inject economic concepts into the analysis. This paper provides a background for both the per-se standard for price fixing and the evolution of the meaning of the term “agreement.” The Plus Factor concept is addressed, with a suggestion to first consider the evidence for an agreement and then determine whether the alleged agreement is a more likely explanation for the market behavior than conscious parallelism (tacit collusion). A generic structure for evaluating Plus Factors is also proposed. A follow-on analysis reviews the recent insights by Kaplow, Kovacic and his co-authors, and Harrington. While each economic study is seen as supplementing the standard Plus Factor analysis, none of the papers justify a new direction for price fixing.

Kaplow’s idea to re-consider Posner’s recommendation to broaden price fixing analysis to attack even tacit collusion is seen as particularly suspect, because it over-emphasizes theory. The paper concludes with suggestions for further research linked to the analysis of efficiency considerations potentially driving an agreement, Minus Factors that negate the ability to infer an agreement, and game theoretic analysis to further explore the economic foundations of price fixing.

The International Dimension of Proprietary Technical Standards: Through the Lens of Trade, Competition Law and Developing Countries

Posted by D. Daniel Sokol

Yogesh Pai, National Law University, Jodhpur addresses The International Dimension of Proprietary Technical Standards: Through the Lens of Trade, Competition Law and Developing Countries.

ABSTRACT: This paper has examined problems arising from proprietary technical standards at different levels of normative inquiry from the perspective of competition law and trade regulation with an emphasis on issues and concerns for developing countries. It aims to highlight the current legal and policy vacuum within the WTO framework in addressing problems of patents in standards from a competition policy dimension. The exclusivity preserved by patents is essential for development of new technologies, while standardization ensures homogeneity and introduces product compatibility. However, the interaction between the two species of legal entitlements (i.e. patents- exclusive v. standards-nonexclusive) is far from achieving coherence. Although Standard Setting Organisations (national/regional/international) have IPR polices to govern the interface, they have largely failed to resolve issues.

A survey of legal developments in comparative jurisdictions (US and EU) pertaining to the standards interface between patents and competition law reveals the possibility of diverging interpretations. This is on account of economic philosophy governing competition norms which requires higher deference to dynamic efficiencies generated by the IP system. Since standards practitioners are spread across the globe, the competitive harm generated by lax antitrust scrutiny has raised concerns among certain developing countries.

This paper has examined the WTO framework of TRIPS and TBT Agreements that largely governs the interface between proprietary standards and competition policy. By placing reliance on different analytical tools- viz., ‘principle-oriented’ approach and by internalizing competition rules (regulatory approach as provided by interconnection rules in GATS Annex to Telecommunications), the paper suggests higher deference for competition policy within the WTO to resolve the issue of proprietary technical standards.

Portugal: The New Competition Act

Posted by D. Daniel Sokol

Lucio Tome Feteira has written on Portugal: The New Competition Act.

ABSTRACT: Portuguese competition law has been remodelled recently to provide an effective answer to commitments made by the country in the context of international financial assistance. As of that occasion, it has been aligned more closely on European competition law in terms of both substantial and procedural aspects.

Looking for Practitioners to Guest Blog on NY Times Rabbi Cartel Article

Posted by D. Daniel Sokol

Someone suggested that on the issue of antitrust and judaism in connection to the Conservative momvement's Rabbi cartel that I ask members of the blog readership for guest posts. If you would like to offer antitrust related thoughts by this Friday (250-1,000 words) please send me your blurb.

The Marginal Price Effects of Antitrust Rules Against Price Discrimination

Posted by D. Daniel Sokol

Hans Zenger, Charles River Associates (CRA) explores The Marginal Price Effects of Antitrust Rules Against Price Discrimination.

ABSTRACT: The two central pricing rules contained in most antirust laws are prohibitions of below-cost pricing and prohibitions of discriminatory pricing. This article shows that the rule against discriminatory pricing may actually induce firms to charge exclusionary below-cost prices, even in the complete absence of any predatory intent on the part of firms.

A Landmark Year for the Law on Fines Imposed in EU Competition Proceedings

Posted by D. Daniel Sokol

Eric Barbier de La Serre and Charlotte Winckler (Jones Day) explain why this past year was A Landmark Year for the Law on Fines Imposed in EU Competition Proceedings.

ABSTRACT: In 2011, there has been a slight slackening of the Commission's crack down on cartels with only four cartel decisions issued and no fines imposed (whether per case or per undertaking) that ranked amongst the 10 highest fines in the history of EU cartel enforcement. On the judicial front, the General Court issued its first rulings on the application of the 2006 Guidelines. The Court provided important interpretations concerning the assessment of gravity, as well as major notions such as those of relevant sales, repeat infringement, obstruction, ringleadership, and joint and several liability.

EU Merger Remedies and Competition Concerns: An Empirical Assessment

Posted by D. Daniel Sokol

Wei Wang, AAlto University School of Economics and Matti Rudanko offer EU Merger Remedies and Competition Concerns: An Empirical Assessment.

ABSTRACT: The purpose of merger remedies is to relieve the potential competitive detriments as to preserve the efficiencies. The European Community (EC) Merger Remedies Notice requires remedies able to remove the identified competition concerns entirely and proportionately. The scope of each merger remedy package is confined by the competition concern in question. This study analyses, from an empirical point of view, the relationship between competition concerns and merger remedies. It reviews all remedies accepted in Phase II EU merger investigation and categorises them into seven sets according to their nature. Results of the empirical assessment present the frequencies of each remedy type accepted for resolving various competitions concerns and reveal that merger remedy design does vary for different competition concerns. Horizontal effects require divestiture remedies more. Other structural remedies, especially access commitment and supply commitment, have a good chance to be accepted in resolving vertical and conglomerate effects.