Antitrust & Competition Policy Blog

Concentration in Health Care Markets: Chronic Problems and Better Solutions

Posted by D. Daniel Sokol

Barak D. Richman, Duke University - School of Law explores Concentration in Health Care Markets: Chronic Problems and Better Solutions.

ABSTRACT: Health care providers with market power enjoy substantially more pricing freedom than monopolists in other markets, for a reason not generally recognized: US-style health insurance. Consequently, monopolies in health care cause undesirable redistribution of wealth and inefficient allocation of resources, both of which burden consumers at levels beyond those of other monopolists. The unusual costliness of monopoly power in health care markets demands far more policy attention than it has received. For starters, the health sector needs a more aggressive antitrust policy that effectively prevents the creation of new provider market power through mergers, alliances, or government immunity. An immediate need is ensuring that the formation of accountable care organizations under the Patient Protection and Affordable Care Act (PPACA), which in theory might achieve efficiencies through vertical integrations, do not primarily lead to horizontal integrations that give providers additional market power.

Because antitrust policy has been so inadequate for so long in the health sector, and because it remains unlikely that courts or enforcement agencies will undo past mergers that created these powerful provider monopolies, policymakers should pursue additional strategies for contesting existing monopolies. One approach is to apply antitrust rules against “tying” arrangements so that purchasers can combat providers’ profit-enhancing practice of overcharging for large bundles of services instead of trying to exploit separately any monopolies they possess in various submarkets. Another strategy is to use antitrust or regulatory rules to prohibit anticompetitive provisions, such as “antisteering” or “most-favored-nation” clauses, in provider-insurer contracts. Policymakers could also help restore price competition in monopolized markets by enabling private payers to negotiate prices for specific provider services and encouraging insurers to expand the scope of competition — via medical tourism, for example, or configuring innovative health care delivery that bypasses many of the embedded costs in the current system. Some commentators have suggested that the provider monopoly problem is severe enough to warrant consideration of a more radical alternative: regulating provider prices. By restricting how insurers can purchase health services, the PPACA might effectuate a regulatory regime that significantly limits price and nonprice competition. However, even under the PPACA room remains for creative regulatory policies that enhance competition in health care markets and encourage better uses of our increasingly scarce health care dollars.

Countervailing power and input pricing: When is a waterbed effect likely?

Posted by D. Daniel Sokol

Stephen P. King, Department of Economics Monash University asks Countervailing power and input pricing: When is a waterbed effect likely?

ABSTRACT: A downstream firm with countervailing power can extract a reduced price from an input supplier. A waterbed effect occurs if this price reduction leads the input supplier to raise the price that it charges another downstream firm. Policy makers have been concerned that this waterbed effect could undermine downstream competition, and it was considered in detail in the 2008 UK grocery inquiry. This paper presents a simple but parsimonious model to investigate if and when a waterbed effect may arise. It shows that the effect may arise through optimal pricing behaviour, but that this critically depends on the nature of upstream technology, downstream competition and consumer demand. In particular, downstream competition tends to work against a waterbed effect, but convex upstream costs support the effect. The analysis is complementary to recent academic work on the waterbed effect that focuses on bargaining constraints.

Two-Sided Platform Competition in the Online Daily Deals Promotion Market

Posted by D. Daniel Sokol

Aurora Garcia-Gallego, Universitat Jaume I, Nikolaos Georgantzis, University of Granada - Campus La Cartuja, Universitat Jaume I and Gerardo Sabater, LINEEX and University Jaume I of Castellon address Two-Sided Platform Competition in the Online Daily Deals Promotion Market.

ABSTRACT: We empirically investigate the platform competition in the online daily deals promotion market that is characterized by intense rivalry between two leading promotion sites, Groupon and LivingSocial, that broker between merchants and consumers. We find that deals offered through Groupon, the incumbent, sell more and generate higher revenues than those offered by LivingSocial, the entrant. We show that the greater network size in the consumer side entirely explains the incumbent’s lead in the merchant side performance, indicating the existence of cross-side network effects at the aggregated market level. However, this performance advantage is dampened by the entrant’s competitive chasing at local markets through offers of greater discounts and lower prices. Moreover, the incumbent advantage quickly attenuates as the merchants repeat promotions over time. These countering forces appear to prevent this market from achieving a tipping equilibrium. Our findings thus help explain why different market structures arise in two-sided markets with network externalities.

Taking Innovation Seriously: Antitrust Enforcement If Innovation Mattered Most

Posted by D. Daniel Sokol

Tim Wu (Columbia Law) is Taking Innovation Seriously: Antitrust Enforcement If Innovation Mattered Most.

ABSTRACT: Now is a particularly important time to consider the relationship between antitrust and innovation. Both US and European antitrust en forcement authorities are taking a look at the state of competition on the Internet, an inquiry that puts into clear focus the need for antitrust to take seriously its relationship with innovation policy. How would the enforcement of antitrust look if the promotion of innovation were its paramount concern? I present 3 suggestions: (1) law enforcement would be primarily concerned with the exclusion of competitors. (2) A competition law centered on promoting innovation would take very seriously its oversight of "innovation catalysts." Oversight of standard setting, platforms, and patents would be of paramount importance. (3) The timing of intervention would become a more crucial issue than it is today — as a matter of prosecutorial discretion considered independent of illegality.

Standards, Essential Patents and Antitrust

Posted by D. Daniel Sokol

Jorge Padilla, Compass Lexecon, Standards, Essential Patents and Antitrust.

ABSTRACT: Standard essential patents (SEPs)—patents that read on a standard and are declared essential to practising that standard by their owners—have attracted the attention of competition authorities all over the world. The alleged abuse of the market power conferred by SEPs was the core issue investigated by the US and EU competition authorities in relation to Rambus’s conduct; it was the chief concern behind DG Comp’s investigation of Qualcomm’s licensing practices; it was considered by the US and EU competition authorities when reviewing the merger between Google and Motorola and the recent patent aggregation mergers involving, among others, Nortel’s patent portfolio; and, of course, it is centrestage of the ongoing reviews of Samsung’s and Motorola’s licensing practices.

What explains the recent popularity of SEPs with the competition agencies? First, standardisation plays a key role in several industries; most prominently in the telecoms, software, and hardware industries. Second, the number of patents in some standardised industries has grown very significantly. Third, many of those patents have been declared essential to practising standards. Fourth, some competition authorities have concluded that (a) standardisation restricts competition and thus creates market power and (b) SEP ownership automatically confers dominance. And, lastly, standardised industries are populated by asymmetric companies: some of them have SEPs while others don’t; some of them are pure innovators while others are pure implementers and yet others are vertically integrated. Asymmetry engenders dispute and dispute attracts regulatory attention when regulators are persuaded, as some appear to be, that commercial courts are likely to be unable to deal effectively with the complexities of SEP pricing and non-pricing disputes.

Call for Papers on Antitrust and Technology - Florida Journal of Technology Law and Policy

Posted by D. Daniel Sokol

The University of Florida Journal of Technology Law and Policy asked me to send out word that they have space in an upcoming issue and are looking for practitioners and academics (fellows, professors, readers, etc.) to contribute on papers involving technology. Naturally, given the nature of this blog, I presume readers will have antitrust-IP papers to submit.

The Florida Journal of Technology Law and Policy is currently seeking submissions for its upcoming issue, as unexpected printing space has become available which we are looking to immediately fill. We broadly construe "technology" and thus, encourage you to submit articles on a wide range of issues. The due date is January 11.

Send me your submissions and I will do my very best to get them accepted.

Cross Border Service Payments under EU Fair Competition and SEPA Rules

Posted by D. Daniel Sokol

Anca Daniela Chirita, Durham Law School discusses Cross Border Service Payments under EU Fair Competition and SEPA Rules.

ABSTRACT: EU rules on the functioning of a Single European Payment Area (SEPA) Union-wide with free movement of cross-border services have an impact upon fair competition in the internal market for both consumers and smaller businesses. Under Article 102 (a) TFEU, the cost analysis of pricing must be supplemented by translating unfair trading terms and conditions from the field of legal analysis of contracts into that of economics. Terms and conditions which create a more onerous obligation form an integral part of an economic contract concluded by undertakings, irrespective of their market shares, based on a cogent interpretation of their significant negotiating power over EU consumers. Several practices misleading consumers clarify the above understanding using the tools of behavioural economics. The banking sector needs stronger competition intervention in the service market of general economic interest to consumers.

Is it time for the European Union to legislate in the field of collective redress in antitrust (and how)?

Posted by D. Daniel Sokol

Paolo Buccirossi (LEAR) and Michele Carpagnano ask Is it time for the European Union to legislate in the field of collective redress in antitrust (and how)?

ABSTRACT: Although most of the EU Member States allow the victims of an anticompetitive conduct to bring a collective action, so far there have been very few cases across the European Union. A legislative intervention on collective redress in antitrust at EU level may be needed to improve the effectiveness of the private enforcement of EU competition law. This intervention could have article 103 TFEU as a legal basis and the most effective legislative act would be a regulation.

New Prize from the ABA Section of Antitrust Law: $8,000 for best published paper on merger retrospectives

Posted by D. Daniel Sokol

The Section of Antitrust Law is pleased to announce the creation of an award for the best published academic paper providing a retrospective examination of the aftermath of merger decisions made by enforcement agencies or the courts.
QUALIFICATIONS:
Papers must meet the following:
• Address the subject of retrospective examination of the outcomes of merger decisions by government antitrust/competition enforcement agencies, including decisions with or without conditions.
• Include empirical analysis of post-decision data.
• Cover enforcement decisions in any jurisdiction having a governmental merger control system.
• Be in the English language.
• Published or accepted for publication on or after January 1, 2011.
AWARDS:
First place — $8,000
Runner-up — $3,000 (max of 2 may be awarded)

HOW TO ENTER:

Send completed submission form and paper by February 1, 2013 to [email protected] at the ABA Section of Antitrust Law.

See http://apps.americanbar.org/dch/committee.cfm?com=AT008903
for more information and submission form.

Download Retro Analysis Award Flyer_2012

Download Retro Analysis Entry Form_2012

Hell Freezes Over: A Climate Change for Assessing Exclusionary Conduct under Article 102 TFEU

Posted by D. Daniel Sokol

Ekaterina Rousseva, Directorate General for Competition, European Commission and Mel Marquis, European University Institute, University of Verona discuss Hell Freezes Over: A Climate Change for Assessing Exclusionary Conduct under Article 102 TFEU.

ABSTRACT: The ECJ's judgment in Post Danmark A/S v Konkurrenceradet seems to herald new rigour in the application of Article 102 TFEU to exclusionary pricing practices by dominant firms. The judgment clarifies that the core criterion by which to judge exclusionary conduct under Article 102 is its actual or likely effect on competition, and thereby on consumers. The judgment also signals a decision on the part of the ECJ to embrace fundamental concepts advocated in the Commission's Guidance Paper on exclusionary conduct under Article 102, and in doing so contributes to enhanced legal certainty.

Towards an EU Doctrine of Anticompetitive IP-Related Litigation

Posted by D. Daniel Sokol

Simonetta Vezzoso, Trento University has thoughts Towards an EU Doctrine of Anticompetitive IP-Related Litigation.

ABSTRACT: To date, there is little guidance how IP-related vexatious litigation should be assessed under Art. 102 TFEU. But a suitable framework can be developed to determine how such practices would be treated if adopted. That framework can be based on the limited case law existing in Europe on that topic, on the extensive enquiry recently carried out by the European Commission in the pharmaceutical sector and on a comparison with US case law.

Merger Control and Practice in the Bric Countries vs. The EU and the US: Review Thresholds

Posted by D. Daniel Sokol

Nicolas Harle, Boston Consulting Group, Philippe Ombregt, INSEAD and Karel Cool, INSEAD discuss Merger Control and Practice in the Bric Countries vs. The EU and the US: Review Thresholds.

ABSTRACT: In the past five years, each of the BRIC countries has revised its merger control policies and practice, changing the conditions for competing in these markets. In this article, we review the turnover (sales) and asset threshold levels in the BRIC countries vs. the EU and the US that impose a filing and review with the antitrust authorities of the proposed M&A transaction. While a common belief is that merger control thresholds are becoming more similar, our review indicates that thresholds remain very different among the BRIC countries as well as the EU and the US. This is the case for both “small” transactions that can be made without review, as well as the “large” transactions that may expect a review. Further, countries differ substantially in their requirement to review “foreign-to-foreign” transactions (those taking place completely outside the geographic boundaries of a regulatory regime) and whether the turnover and assets of the transacting firms are taken to assess the need for a review, or the turnover and assets of the group to which they belong. Tables provide the actual turnover and asset thresholds in the BRIC countries as well as the EU and the US.

Posted by D. Daniel Sokol

Robert M. Langer (Wiggin and Dana LLP) explains State Antitrust Law: A Trap for the Unwary.

ABSTRACT: In 1994, while still with the Connecticut Attorney General's Office, I wrote a short essay that cautioned antitrust practitioners to beware of state antitrust enforcers and state antitrust law. The article was part of an issue that addressed significant changes in the world of distribution practices. Indeed the cover of the issue was entitled, Braving the New World of Distribution.

What I wrote in the first paragraph of that article still holds true today:

As businesses go speeding down the "distribution superhighway," I would hope they stop long enough (or at least look in the rear-view mirror) to keep an eye out for the state antitrust police cruiser. If not, the architects of the brave new world of innovative distribution arrangements may end up posting bail at the state antitrust police barracks.

The risks inherent in ignoring both state antitrust law and state antitrust enforcement reach far beyond vertical distribution relationships. Much has been written over the years about state antitrust enforcement, including the role of the National Association of Attorneys General Multistate Antitrust Task Force, and I will not seek to retell that story here. Nor will I dwell on either the state indirect purchaser "repealers" of Illinois Brick or the aggressive opposition of several states to the Leegin decision.

Rather, I will focus upon one such substantive difference between state and federal antitrust law to illustrate my point. The array of important differences between state and federal antitrust law present complicated counseling challenges for the seasoned antitrust practitioner, and a trap for the practitioner unaware that such distinctions even exist.

On Two-Part Tariff Competition in a Homogeneous Product Duopoly

Posted by D. Daniel Sokol

Krina Griva, Athens University of Economics and Business - Department of Economics and Nikolaos Vettas, Athens University of Economics and Business - Department of Economics, University of Athens - Faculty of Economics provide thoughts On Two-Part Tariff Competition in a Homogeneous Product Duopoly.

ABSTRACT: We explore the nature of two-part tariff competition between duopolists providing a homogeneous service when consumers differ with respect to their usage rates. Competition in only one price component (the fixed fee or the rate) may allow both firms to enjoy positive profits if the other price component has been set at levels different enough for each firm. Endogenous market segmentation emerges, with the heavier users choosing the lower rate firm and the lighter users choosing the lower fee firm. We therefore characterize how fixing one price component indirectly introduces an element of product differentiation to an otherwise homogeneous product market. We also examine the crucial role that non-negativity constraints play for the nature of market equilibrium.

FTC v. Phoebe Putney Health System Inc. Oral Argument

Posted by D. Daniel Sokol

See the transcript for the FTC v. Phoebe Putney Health System Inc. Supreme Court oral argument here.

A COMPARATIVE ASSESSMENT OF METHODOLOGIES USED TO EVALUATE COMPETITION POLICY

Posted by D. Daniel Sokol

Stephen W. Davies and Peter L. Ormosi (both University of East Anglia) offer A COMPARATIVE ASSESSMENT OF METHODOLOGIES USED TO EVALUATE COMPETITION POLICY.

ABSTRACT: Research by academics and competition agencies on evaluating competition policy has grown rapidly during the last two decades. This article surveys the literature in order to (1) assess the fitness of the main quantitative methodologies employed and (2) identify the main undeveloped areas and unanswered questions for future research. It suggests that policy evaluation is necessarily an imprecise science and that all existing methodologies have strengths and limitations. The areas where the need is most pressing for further work include: understanding why abuse of dominance cases are only infrequently evaluated; the need to bring conscious discussion of the counterfactual firmly into the foreground; and a wider definition of policy to include success in deterrence and detection. At the heart of the discussion is the impact of selection bias on most aspects of evaluation.

Horizontal Product Differentiation: Disclosure and Competition

Posted by D. Daniel Sokol

Maarten C. W. Janssen and Mariya Teteryanikova Horizontal Both university of Vienna) discuss Product Differentiation: Disclosure and Competition.

ABSTRACT: The unraveling argument says that when a rm may produce dierent qualities and quality is unknown to consumers, the rm has an incentive to disclose the private information as in any pool of rms there is a best quality rm and this rm has an incentive to disclose. Recent literature has established that this argument does not carry over to an environment where the product is not vertically, but horizontally dierentiated. This paper argues that with horizontally dierentiated products, competition restores the unraveling argument. In a duopoly market we show that all equilibria of the disclosure game have rms fully disclosing the variety they produce.

Does Regulation Drive Competition? Evidence from the Spanish Local TV Industry

Po9sted by D. Daniel Sokol

Ricard Gil (Carey Business School, Johns Hopkins University) and Mitsukuni Nishida (Carey Business School, Johns Hopkins University) ask Does Regulation Drive Competition? Evidence from the Spanish Local TV Industry.

ABSTRACT: Although we have many tools to understand the effect of regulation on competition, we know little about the importance of enforcement in explaining the impact of regulation. For this purpose, this paper uses data from Spanish local television industry in Spain from 1995 through 2001, which provide an unique opportunity for examining how competition changes with the introduction of regulation and a posterior liberalization. During this period, the television industry transitioned from a state of alegality (no regulation in place) to being highly regulated and finally to being deregulated. Using a firm entry model from Bresnahan and Reiss (1990, 1991), we estimate local TV station entry thresholds by number of entrants across years. We decompose the ratio into the fixed costs and variable profits, and find both an increase in the fixed-costs ratios and decrease in the variable-profit ratios drive the departure in the entry! threshold from the one in other years. We find the model parameters are informative about the nature of the regulation and how strongly the government enforces the regulation.

Parallel Federal/State Antitrust Investigations

Posted by D. Daniel Sokol

Stephen D. Houck (Menaker & Herrmann LLP) explores Parallel Federal/State Antitrust Investigations.

ABSTRACT: Most state antitrust enforcement actions are brought by a single state acting on its own rather than jointly with other states or the federal agencies. The broad antitrust jurisdiction of state attorneys general, however, does overlap significantly with that of the two federal antitrust enforcement agencies. According to one study, approximately 25 percent of state antitrust cases have had at least some relationship to federal enforcement efforts.

Those matters in which both federal and state antitrust authorities do take an interest usually have significant impacts across state lines and even international borders. The parallel federal/state investigations to which they give rise present unique challenges for all concerned, including counsel for the subjects as well as the participating enforcers. It is important, therefore, to understand how they work, how to take advantage of the opportunities they present, and how to avoid the pitfalls.

Defense counsel often dread the prospect of having to deal with two sets of enforcement officials. My own experience is that, despite some inefficiency, parallel investigations generally lead to a sounder enforcement decision because of the interchange of views among enforcement officials with varying perspectives. Parallel investigations also provide additional entry points for outside counsel to ensure that their views are heard and considered and to overcome potential bias within a single agency. Moreover, well-coordinated parallel investigations substantially increase the likelihood of a common resolution-invariably a desirable result for everyone concerned.

Using Spectrum Auctions to Enhance Competition in Wireless Services

Posted by D. Daniel Sokol

Peter Cramton (Economics Department, University of Maryland), Evan Kwerel (FCC), Gregory Rosston (Stanford), Andrzej Skrzypacz (Stanford) explain Using Spectrum Auctions to Enhance Competition in Wireless Services.

ABSTRACT: Spectrum auctions are used by governments to assign and price licenses for wireless communications. Effective auction design recognizes the importance of competition, not only in the auction, but in the downstream market for wireless communications. This paper examines several instruments regulators can use to enhance competition and thereby improve market outcomes.