Antitrust & Competition Policy Blog

STRATEGIC ENTRY DETERRENCE: PIONEER FOODS AND THE BREAD CARTEL

Posted by D. Daniel Sokol

Liberty Mncube, Competition Commission South Africa explores STRATEGIC ENTRY DETERRENCE: PIONEER FOODS AND THE BREAD CARTEL.

ABSTRACT: Joseph Harrington studies whether cartel members can sustain cooperation over time under the threat of free entry in an infinitely repeated game and shows that firms can deter entry by credibly threatening to meet any entry with an episode of below-cost pricing. In this article, we provide direct evidence of predation through below-cost pricing in the cartelized South African bread industry by comparing prices to average variable costs. We find evidence of episodes of predatory pricing. While the Competition Commission case was settled before adjudication by the Competition Tribunal, Pioneer Foods admitted to the strong evidence of predatory intent and that its conduct impeded small independent bakeries from expanding within the market and competing effectively as part of the settlement agreement.

ATTENTION RIVALRY AMONG ONLINE PLATFORMS

Posted by D. Daniel Sokol

David Evans (University of Chicago, UCL, Global Economics) explains ATTENTION RIVALRY AMONG ONLINE PLATFORMS.

ABSTRACT: Many online businesses seek and provide attention. These online attention rivals provide products and features to obtain the attention of consumers and sell some of that attention, through other products and services, to merchants, developers, and others who value it. The multi-sided business of seeking and providing attention is fluid with rivalries crossing boundaries defined by the features of the products and services. It is also dynamic. Rivals introduce new products and services, some involving drastic and frequent innovation. Online attention rivals impose competitive constraints on one another. Product differentiation tempers the significance of these constraints in particular situations. But the relevant differentiation mainly involves aspects of the attention that is procured and sold rather than, necessarily, particular features of the products and services used for acquiring and delivering that attention. Antitrust analysis should consider these competitive constraints in evaluating market definition, market power, and the potential for anticompetitive effects. The existence of competition among attention rivals does not imply that antitrust should reduce the vigor with which it examines mergers and exclusionary practices among these platforms. It just needs to look for problems in the right places.

THE POST-CARTEL EQUILIBRIUM PUZZLE IN THE GERMAN CEMENT MARKET: A REPLY TO HUSCHELRATH, MULLER, AND VEITH

Posted by D. Daniel Sokol

Niels Frank (Lademann & Associates GmbH and University of Bayreuth) and Philipp Schliffke offer THE POST-CARTEL EQUILIBRIUM PUZZLE IN THE GERMAN CEMENT MARKET: A REPLY TO HUSCHELRATH, MULLER, AND VEITH.

ABSTRACT: Kai Huschelrath, Kathrin Muller, and Tobias Veith study the German cement cartel that lasted from the beginning of the 1990s until the end of 2001. Using both a during-and-after and a yardstick difference-in-difference approach, they estimate cartel overcharges between 20 percent and 26.5 percent, pointing out that they have explicitly considered alternative post-cartel transition periods. We show that the authors fail to account for the most important aspect of damage estimation in that case—a punishment phase that followed the internal breakdown of the cartel. The result is an estimated overcharge that is more than twice as large as it was estimated during court proceedings. We develop a simple procedure that helps to estimate the length of the post-cartel off-equilibrium period. Using this procedure, we show that any overcharge estimation that is not considering this punishment phase is highly non-robust and yields upward biased overcharge estimates.

Collective Dominance and Collusion Parallelism in EU and US Competition Law

Posted by D. Daniel Sokol

Marilena Filippelli, Free University of Bozen has written on Collective Dominance and Collusion Parallelism in EU and US Competition Law.

BOOK ABSTRACT: The book contains a suggested approach to collusion, in ex ante and ex post perspectives. By moving from the analysis of the state of art, in terms of law, case law, and scholarship, Marilena Filippelli analyses inconsistencies and failures in the current antitrust enforcement toward collusion and develops a workable parameter for the issue of collective dominance. The most innovative part of this work goes beyond the analysis of collective dominance itself and involves the interference of arts. 101 and 102. The conclusion is a re-definition of the relationship between those rules—from dichotomy to redundancy. Finally, the book highlights the antitrust significance of semi-collusion as a strategy made of collusion and competition. The author considers economic models equalling, as for the effects, collusion and semi-collusion and the case law supporting the qualification of semi-collusion as a species of collusion. The analysis involves both US and EU systems under the highly topical economic-oriented approach. It also contains an original view of European antitrust prohibitions.

Personal News - Back to Florida and Health Issues

Posted by D. Daniel Sokol

Next week we return to the University of Florida after a year at the University of Minnesota.  The visit professionally and personally was very important.  I had wonderful colleagues at the law school. The Dean, David Wippman, is great and sets a tone of intellectual rigor, competence, seriousness of purpose and civility.  The culture reflects this tone at the top.  Faculty members at the law school are smart and nice.  There are dedicated scholars and teachers.  My interactions with faculty at the Carlson School of Management and the Humphrey School of Public Affairs were also wonderful.  At the University, there is a core group of faculty interested in antitrust law and economics.  The antitrust practitioner community is vibrant and with over 20 Fortune 500 companies in the Twin Cities, I had many opportunities to get a very detailed understand of how companiesdeal with antitrust issues as part of their business strategy.  The nights of -30F (cold enough that the difference between farenheight and celcius is minimal) were less wonderful but when you are inside, you don't feel the cold.

Most importantly regarding the visit, the medical care in Minnesota is world class.  I want to share something very personal because I think if one falls within certain risk factors, genetic testing and the possibility of surgery is warranted.  Early during our time in Minnesota, my wife was diagnosed with the BRCA2 gene.  Following the news of Angelina Jolie and her double mastectomy because of her BRCA1 gene, many now know the difficulty of having such genetic mutations. In short, you are a walking genetic time bomb.  You have a lifetime risk of ovarian cancer of roughly 25-40% and a lifetime risk of breast cancer of 45-70% depending on which study you read, family factors, etc.  In my wife's case, there has been a significant history of such cancers in her family (and indeed, the largest risk factor for BRCA2 is being an Ashkenazi Jewish woman). We saw many doctors around the country and all told us the same thing -- the recommended treatment was for a full hysterectomy followed by a double mastectomy.  Detection is very bad for ovarian cancer.  By the time ovarian cancer is detected, typically one has stage 3 cancer and life expectancy is typically another year or year and a half.  Breast cancer detection rates are higher and detection often is at a much earlier stage. 

Six weeks ago my wife had a full hysterectomy.  The physical recovery is not easy.  It is a major surgery, although now done via lathroscopic surgery, which is far less invasive and reduces the recovery time.  During the six week recovery period, she could not lift our 17 month old daughter.  For those of you who are parents, you can understand how emotionally painful this is.  Within the next year or two, my wife will have a preventative double mastectomy.  Overall, dealing with this diagnosis has been emotionally difficult for my wife and my entire family.  Luckily, we have had tremendous support.  My parents have been great throughout the process.  They also came to help us for two weeks after the surgery.  Our friends in Minneapolis also have been outstanding in providing emotional support.  Again, I want to thank Dean Wippman.  Within an hour of learning about my wife's diagnosis, he had us in touch with the Dean of the University of Minnesota Medical School.  Getting us connected to the right doctors at the University and Mayo Clinic was very important and without help, we would have been lost.  From this process, there is not a single study that we have not read about BRCA.  Others around the world with whom we had shared our situation also provided us much support, whether emotional support or support through facilitating contact with a number of world class doctors for second opinions.     

I share this information because I am proud of my wife.  She wants to live a long time and be a part of my life and the lives of our three children.  Taking prophylactic steps is not easy emotionally or physically, nor is it always easy to share information with others.  Many people feel embarrased by their medical conditions.  We want to reduce the stigma that people feel when they are sick and to let others who are not sick to know that most people who are dealing with difficult issues welcome a show of support.    

Josh Wright Policy Speech - Proposed Policy Statement Regarding Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act

Posted by D. Daniel Sokol

Josh Wright (FTC) has offered a Proposed Policy Statement Regarding Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act.

Enforcing Competition Rules In South Africa: Thieves at the Dinner Table

Posted by D. Daniel Sokol

David Lewis (Corruption Watch and Gordon Institute of Business Science) has authored the very important Enforcing Competition Rules In South Africa: Thieves at the Dinner Table.

BOOK ABSTRACT: This fascinating book describes and analyses the development of competition law in South Africa, promoting a deeper understanding of the development of this foundational economic law within its specific national, social and economic context.

Enforcing Competition Rules in South Africa is a clear and insightful account of the establishment and first decade of one of the most successful competition law institutions to have mushroomed over the past 15 years. David Lewis believes that, while there is much to learn from international scholarship and jurisprudence and from participation in the various multinational initiatives in this field, competition law and its institutions have to be understood within their national economic and social contexts.

The Private Enforcement of Competition Law in Ireland

Posted by D. Daniel Sokol

David McFadden (Irish Competition Authority) has written The Private Enforcement of Competition Law in Ireland.

BOOK ABSTRACT: Competition is recognised as a key driver of growth and innovation. Competition ensures that businesses continually improve their goods and services whilst striving to reduce their costs. Anti-competitive conduct by businesses, such as price-fixing, causes harm to the economy, to other businesses and to consumers. It is small businesses and the consumer who ultimately pay the price for anti-competitive conduct. A coherent competition policy that is both effectively implemented and effectively enforced is essential in driving growth and innovation in a market economy. The importance of competition was recently emphasised when the EU/ECB/IMF 'Troika' included a number of competition specific conditions to the terms of Ireland's bailout. Both Irish and Community law recognise the right for parties injured by anti-competitive conduct to sue for damages. This right to damages, in theory, allows those that have suffered loss to recover that loss whilst helping to deter others from taking the illegal route to commercial success. However private actions for damages in Ireland are rare.

This book asks what the purpose of private competition litigation is and questions why there has been a dearth of this litigation in Ireland. The author makes a number of suggestions for reform of the law to enable and encourage private competition litigation. The author takes as his starting point the European Commission's initiative on damages actions for breach of the EC antitrust rules and compares the position in Ireland to that currently found in the UK and US.

ABA Section of Antitrust Law International Scholar-In-Residence Program accepting Spring 2014 applications

Posted by D. Daniel Sokol

The ABA Section of Antitrust Law has announced that the International Scholar-In-Residence Program is now accepting Spring 2014 applications. Deadline: July 30, 2013.

The Section of Antitrust Law International Scholar-In-Residence Program provides up to $10,000 for scholars to visit the United States and pursue competition policy-related research.

If you wish to apply, please carefully read the application details. For more information contact Deborah Morgan, Assistant Director, ABA Section of Antitrust Law.

The international mercury cartel, 1928-1949

Posted by D. Daniel Sokol

Miguel A. Lopez-Morell (Universidad de Murcia) and Luciano Segreto (Universita degli Studi di Firenze) describe The international mercury cartel, 1928-1949.

ABSTRACT: Mercury has been one of the most persistent cases in contemporary history of international market regulations and this in spite of its having been affected by important technological changes and the regular discovery of new deposits. This paper offers an approach to the least known period, although perhaps the one in which the greatest rises in process and production occurred as a consequence of market manipulation. The period coincides with a series of agreements between the Spanish and the Italian producers and the outcome was a worldwide cartel known as “Mercurio Europeo” which came into being in 1928. The aims of this work will, therefore, be first to describe the features of the various stages of development of the international mercury market during the first half of the twentieth century, with emphasis on the characteristics and conditioning factors in each period. Secondly, the objective is to analyze the various market agreements that came about, the effectiveness of the clauses therein, the construction of distribution networks and the influence that the increase in production had on other mines and on certain technological developments.

Platform Competition and Access Regulation on the Internet

Posted by D. Daniel Sokol

Sue H. Mialon and Samiran Banerjee (both Emory) analyze Platform Competition and Access Regulation on the Internet.

ABSTRACT: We provide a new model of platform competition on the Internet and analyze the effect of last-mile access charges on market outcomes. Consumers subscribe to two vertically related platforms, an Internet service provider (ISP) and a content network platform (CNP), to reach content providers (CPs). CPs interact with consumers via CNPs. Local ISPs provide an essential input: the internet connection for consumers and the last-mile access for the CNPs. The effects of access regulation that lowers the ISPs' last-mile access charges depend on (i) how much consumers value the network services, (ii) how much an increase in the Internet price lowers CNPs' fees from CPs, and (iii) the elasticities of consumer demand for the Internet with respect to price and network externality. When consumers' valuation of the network services is very high, the market for Internet connection is fully covered and access regulation unambiguously improves welfare since it lowers the fees for CPs without affecting consumer demand. When consumers' valuation is very low, access regulation does not have any impact because ISPs optimally set the access charge at zero. When consumers' valuation is moderate and the CNPs' fee reduction in response to a higher Internet price is large, access regulation lowers not only the fees from CPs but also consumer Internet prices. Hence, the "seasaw principle" between consumer Internet price and access charge breaks down in this case, and access regulation unambiguously improves welfare for consumers and CPs. On the other hand, if CNPs' fee adjustment is minimal, access regulation induces a higher consumer internet price and the welfare implication of access regulation is ambiguous. Access regulation improves welfare in this case if consumer demand responds more to the change in network externality than the change in price.

Adverse effects of patent pooling on product development and commercialization

Posted by D. Daniel Sokol

Thomas D. Jeitschko (Michigan State) and Nanyun Zhang (Towson State) have an interesting paper on Adverse effects of patent pooling on product development and commercialization.

ABSTRACT: The conventional wisdom is that the formation of patent pools is welfare enhancing when patents are complementary, since the pool avoids a double-marginalization problem associated with independent licensing. This conventional wisdom relies on the effects that pooling has on downstream prices. However, it does not account for the potentially significant role of the effect of pooling on downstream innovation. The focus of this paper is on downstream product development and commercialization on the basis of perfectly complementary patents. We consider development technologies that entail spillovers between rivals, and assume that final demand products are imperfect substitutes. When pool formation facilitates information sharing and either increases spillovers in development or decreases the degree of product differentiation, patent pools can adversely affect welfare by reducing the incentives towards product development a! nd product market competition|even with perfectly complementary patents. The analysis modifies and even negates the conventional wisdom for some settings and suggests why patent pools are uncommon in science-based industries such as biotech and pharmaceuticals that are characterized by tacit knowledge and incomplete patents.

Merger, Product Differentiation, and Trade Policy

Posted by D. Daniel Sokol

Guillaume  Cheikbossian (University of Montpellier, TSE) and Philippe Mahenc (University of Montpellier) describe Merger, Product Differentiation, and Trade Policy.

ABSTRACT: In a two-stage game with three firms and two countries, we study the profitability of a domestic merger in the context of an international oligopoly game with differentiated products and in a strategic trade policy environment. In contrast to a completely unregulated economy, we show that the domestic merger under Cournot competition is always profitable to the host country irrespective of the degree of product differentiation. Furthermore, it is also profitable to the competing country - hosting one firm only if products are sufficiently differentiated. Under Bertrand competition the merger is always profitable to both countries independently of the product range rivalry. But in a strategic trade environment it is more profitable to the country in which the merger occurs than to the other country.

Cooperation in the Presence of an Advantaged Outsider

Posted by D. Daniel Sokol

Guillaume Cheikbossian (University of Montpellier, TSE) and Philippe Mahenc (University of Montpellier) analyze Cooperation in the Presence of an Advantaged Outsider.

ABSTRACT: This paper analyzes how the stability of the tacit cooperation within a fringe of several identical firms is affected by the presence of a more efficient firm which does not take part in their cooperative agreement. The model assumes that the firms of the fringe adopt ?stick and carrot strategies a la Abreu (1986, 1988) to support cooperation, while the outside firm plays its one-period best response function to these strategies, regardless of the history of play. Assuming a linear demand function and constant marginal costs, we then obtain conditions for the cooperation within the fringe to be sustainable and focus on the most cooperative symmetric punishment (MCSP) that sustains cooperation. We show that the MCSP is harsher when the number of firms involved in the agreement is relatively large or when their relative cost disadvantage is relatively small. However, both a larger number of firms and a larger cost disadvantage make it more difficult to sustain the cooperation.

Preemption, leverage, and financing constraints

Posted by D. Daniel Sokol

Michi NISHIHARA (Graduate School of Economics, Osaka University) and Takashi SHIBATA (Graduate School of Social Sciences, Tokyo Metropolitan University) discuss Preemption, leverage, and financing constraints.

ABSTRACT: This paper investigates the interactions between preemptive competition and leverage. We find that the second mover always leaves the duopoly market before the first mover, although the leader may exit before the followerfs entry. We also see the leverage effects of debt financing increasing firm values and accelerating investment, even in the presence of preemptive competition. In addition to the case with optimal capital structure, we analyze a case with financing constraints that require firms to finance investment costs by debt. Notably, financing constraints can delay preemptive investment and improve firm values in preemptive equilibrium. Indeed, the leaderfs high leverage due to the financing constraints can lower the first-mover advantage and weaken preemptive competition. Especially with strong first-mover advantage, the financing constraint effects can dominate the leverage effects. These findings are almost co! nsistent with empirical evidence that high leverage leads to competitive disadvantage and mitigates product market competition.

Cartel Appeals to the Court of Justice: The Song of the Sirens?

Posted by D. Daniel Sokol

Peter D. Camesasca, Johan Ysewyn (Clifford Chance), Thomas Weck and Brian Bowman ask Cartel Appeals to the Court of Justice: The Song of the Sirens?

ABSTRACT: This article reviews the cartel precedent of the General Court and the European Court of Justice to quantify the chances of success on appeal. It still appears most promising to direct the appeal mainly against the reasoning underlying the fining decision, in particular where the latter was increased for reason of aggravating circumstances or for deterrence. For factual or substantial pleas, clients should—to the extent possible—develop a convincing ‘story’ establishing why the purported infringement they are accused of did not exist at all, or only existed to a lesser extent. As regards procedural matters, they should focus on clear violations of their rights—for example unequal treatment.

Does Experience Make You ‘Tougher’? Evidence from Competition Law

Posted by D. Daniel Sokol

Ludivine Garside, University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO), Paul A. Grout, University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO) and Anna Zalewska, University of Bath - Centre for Governance and Regulation; School of Management ask Does Experience Make You ‘Tougher’? Evidence from Competition Law

ABSTRACT: This article investigates experience effects for public officials. Using a unique data set of companies investigated under UK competition law, we find very strong experience effects for chairmen of investigation panels, estimated from the increase in experience of individual chairman. Probit and IV probit regressions indicate that replacing an inexperienced chairman with one of average experience increases the probability of a ‘guilty’ outcome by approximately 30% and, after chairing around 30 cases, a chairman is predicted to find almost every case guilty.

INTERLOCKING DIRECTORATES: AN ITALIAN ANTITRUST DILEMMA

Posted by D. Daniel Sokol

Valeria Falce (European University of Rome) discusses INTERLOCKING DIRECTORATES: AN ITALIAN ANTITRUST DILEMMA.

ABSTRACT: The detrimental effects deriving from the widespread diffusion of interlocking directorates in the financial sector have been recently addressed by the Italian legislator. The new regulation, prohibiting personal links as such, swings between two focal points: the first is aimed at promoting a competitive marketplace, and the second one at fostering a more ethical environment based on diligence, correctness, and fairness. Both extremes perform a very precious function, balancing the undesirable consequences coming from the sole application of the other. In order to maximize the benefits of the new regulation, reducing its downsides, some amendments are suggested. As a result of their introduction, neutral social networks will be recognized and preserved, whereas those that represent the “superficial layer” of a broader pathological functioning of specific financial markets will be detected and appropriately eliminated.

Putting Innovation Incentives Back in the Patent-Antitrust Interface

Posted by D. Daniel Sokol

Thomas K. Cheng, University of Hong Kong - Faculty of Law argues for Putting Innovation Incentives Back in the Patent-Antitrust Interface.

ABSTRACT: This Article proposes a new approach, the constrained maximization approach, to the patent-antitrust interface. It advocates a return to the utilitarian premise of the patent system, which posits that innovation incentives are preserved so long as the costs of innovation are recovered. While this premise is widely accepted, it is seldom applied by the courts in patent-antitrust cases. The result is that courts and commentators have been overly deferential to dynamic efficiency arguments in defense of patent exploitation practices, and have failed to scrutinize the extent to which patentee reward is genuinely essential to generating innovation incentives. Under the constrained maximization approach, the antitrust courts attempt to maximize the net social benefits of an innovation by adjusting the scope of patent exploitation, subject to the constraint that innovation costs are recouped. This approach will allow the courts to take into account two important considerations in the balance between static and dynamic efficiencies that have been largely overlooked: the contribution of cumulative innovation to social welfare and the variety of ways in which innovators recover their R&D investments in addition to patent protection. Incorporation of both of these considerations lends support to a more robust approach to the patent-antitrust interface.

Search Neutrality and Search Bias: An Empirical Perspective on the Impact of Architecture and Labeling

Posted by D. Daniel Sokol

David A. Hyman, University of Illinois College of Law and David J. Franklyn, University of San Francisco School of Law discuss Search Neutrality and Search Bias: An Empirical Perspective on the Impact of Architecture and Labeling.

ABSTRACT: As Google has moved from providing “ten blue links” to “universal search,” controversy has erupted over whether Google is favoring its own specialized search results over competing specialized results offered by other entities. Google’s competitors have complained about “search bias,” and demanded that antitrust enforcers should ensure “search neutrality.” The U.S. Federal Trade Commission included search bias in the issues it considered as part of its multi-year investigation of Google, but it closed the investigation in January, 2013 without taking any action on that issue. However, the European Commission recently identified “the way Google displays links to its own specialised search services” as the first of four “competition concerns” it had with Google’s business practices. Google recently proposed to settle this dispute by providing prominent links to three rival specialized search services (architectural remedy) and more clearly labeling its specialized search results (labeling remedy). We empirically examine the significance of search output architecture and labeling on consumer knowledge and click-through behavior in two online surveys/simulations. We find that the architecture of the search results page is far more important than any labels that might appear on that page. User awareness of labeling is low, and even labels far more explicit than those currently employed do not have much impact. Consumers appear to have quite sticky expectations about how search results are presented, and their click-through behavior tracks those expectations, irrespective of how the search results are labeled. These findings suggest that the impact of architectural remedies will depend greatly on their design features, while labeling remedies are unlikely to have a significant impact.