Tuesday, August 27, 2013

EVALUATING ANTITRUST LENIENCY PROGRAMS

Posted by D. Daniel Sokol

Joan-Ramon Borrell, Juan Luis Jimenez and Carmen Garcia are EVALUATING ANTITRUST LENIENCY PROGRAMS.

ABSTRACT: This article identifies and then quantifies econometrically the impact of leniency programs on the perception of the effectiveness of antitrust policies in the business community using panel data for as many as 59 countries during a 14-year span. We use the dynamics of the gradual diffusion of leniency programs across countries and over time to evaluate the impact of the program, taking care of the bias caused by self-selection into the program. We find that leniency programs increase the perception of effectiveness by an order of magnitude ranging from 10 percent to 21 percent. Leniency programs have become weapons of mass dissuasion in the hands of antitrust enforcers against the more damaging forms of explicit collusion among rival firms in the market place.

August 27, 2013 | Permalink | Comments (0) | TrackBack (0)

Monday, August 26, 2013

2013 Annual Competition Law Fall Conference

2013 Annual Competition Law Fall Conference

Presented by the Canadian Bar Association's National Competition Law Section

Chair: Anita Banicevic, Davies Ward Phillips & Vineberg LLP (Toronto)

REGISTRATION NOW OPEN!

An unprecedented number of important decisions are pending (or have recently been decided) in a variety of areas including class actions, mergers, price maintenance and misleading advertising. With the possibility of further changes to the Competition Bureau leadership and policies, the outcome of these decisions will have an important impact on Canadian competition law enforcement and compliance in the coming years.

On October 3 and 4, please join leading experts from the Competition Bureau and the Bar as they discuss and debate the implications of these important developments at the CBA’s National Competition Law Fall Conference.

In addition to a variety of informative and engaging sessions aimed at practitioners, in-house counsel and Competition Bureau staff, the conference will feature a keynote luncheon address by the Commissioner of Competition.

We look forward to welcoming you to Canada’s premier competition law conference at our new venue, the Ottawa Convention Centre!

August 26, 2013 | Permalink | Comments (0) | TrackBack (0)

Cartel Formation through Strategic Information Leakage in a Distribution Channel

Posted by D. Daniel Sokol

Noam Shamir, Tel-Aviv University has written on Cartel Formation through Strategic Information Leakage in a Distribution Channel.

ABSTRACT: This paper studies the ability of competing retailers to form a cartel by sharing information with their mutual manufacturer. In a market characterized by demand uncertainty, colluding retailers desire to share information about the potential market demand in order to coordinate on the optimal collusive retail price. However, since direct information-sharing between competing …firms is considered to be a possible signal for collusion, according to the antitrust laws, the retailers search for a mechanism to exchange information in a manner that would not raise the suspicions of the antitrust authorities. This paper examines such a mechanism: each retailer shares his private information with the mutual manufacturer and uses the wholesale price to infer the market condition and coordinate on the cartel price. Although a cartel at the retail level limits the manufacturer’'s sold quantity, under certain conditions, the manufacturer is better-off accepting the retailers' ’private information, thereby facilitating the cartel formation. Moreover, a situation in which the retailers cannot collude by sharing information horizontally and they collude by sharing information with the manufacturer can result in a lower consumer surplus.

August 26, 2013 | Permalink | Comments (0) | TrackBack (0)

Competition Rules and the Cooperative Firm

Posted by D. Daniel Sokol

Michele Grillo, Catholic University of the Sacred Heart of Milan discusses Competition Rules and the Cooperative Firm.

ABSTRACT: This paper investigates whether and under what conditions the working of cooperative firms can be affected by competition law or market-enhancing regulations. The nature of collective benefits sought by different types of cooperative enterprises is analysed to show whether and how a tension may arise between the market mechanism and the mechanisms through which alternative collective benefits are attained by cooperative firms. On the whole, market-enhancing regulations have an ambiguous impact both on the working of cooperatives and on social efficiency. While benefitting society, a market enhancement reduces the scope for cooperative firms aiming at reducing the deadweight loss in imperfectly competitive markets. A similar conclusion holds if the cooperative firm aims at protecting an investment decision from a hold-up problem, provided that the market enhancement enlarges the set of outside options for the firm’s stakeholders. A market enlargement has a positive impact both on the working of cooperatives and on social efficiency when the aim of the cooperative firm is to prevent shirking in team production. In contrast, a negative impact ensues, with adverse consequences both for social efficiency and the cooperative firm, when the collective benefit sought by the latter is to overcome asymmetric information, as typically happens in the case of credit cooperatives.

August 26, 2013 | Permalink | Comments (0) | TrackBack (0)

What Do Limitation Periods for Sanctions in Antitrust Matters Really Limit?

Posted by D. Daniel Sokol

Ondrej Blazo, Comenius University ask What Do Limitation Periods for Sanctions in Antitrust Matters Really Limit?

ABSTRACT: Limitation periods represent a legal safeguard for a person who has once broken the law in order not to be put at risk of sanctions and other legal liabilities for an indefinite amount of time. By contrast, public interest can sometimes require that a person who has committed a serious breach of law cannot benefit from limitation periods and that it is necessary to declare that the law had indeed been infringed and that legal liability shall be expected irrespective of the passage of time.

This article aims to answer the question whether limitation periods for sanctions attached to competition restricting practices by Slovak competition law also limit the powers of its competition authority to declare the illegality of illicit behaviour or to prohibit it. Although this question can arise, and has done so already, as a defence in antitrust proceedings, as well as the fact that an answer to this question can potentially, as well as actually, affect rights of undertakings which have broken competition rules, Slovak jurisprudence cannot be seen as explicit in answering this question.

August 26, 2013 | Permalink | Comments (0) | TrackBack (0)

Trolls Aren’t Welcome in Lake Wobegon

David Balto has an op-ed on how Trolls Aren’t Welcome in Lake Wobegon.

August 26, 2013 | Permalink | Comments (0) | TrackBack (0)

Legal problems of digital evidence

Posted by D. Daniel Sokol

John Temple Lang, Cleary Gottlieb Steen & Hamilton LLP, Senior Visiting Research Fellow, Oxford, Professor, Trinity College Dublin has written an article on the Legal problems of digital evidence.

ABSTRACT: Article 7 of the Charter of Fundamental Rights gives companies a right of privacy. This is subject, under Article 8(2) of the European Convention on Human Rights, to intervention by public authorities, which is ‘in accordance with the law’ and ‘necessary … in the interests of … economic well-being’. The authorities must not have an unfettered discretion: the law must indicate the scope of any discretion, and the way it may be exercised. When a competition authority examines digital evidence, electronically stored information (ESI) is copied using forensic software, and the copies are analysed using search terms designed to select documents that are within the terms of the inspection decision and relevant to its purpose. The company can prevent unauthorized ‘exporting’ of documents finally selected only by reviewing every document. If the company considers that a document is being copied illegally because it is outside the scope of a valid inspection decision, the only effective and sufficiently prompt remedy under EU law is to claim compensation for breach of privacy under Article 7 of the Charter, and to ask for interim measures. But it is not yet clear that the General Court will say that every breach of Article 7 gives a right to at least some compensation, and it is not clear how far interim measures will be given in such cases. However, it is clear that the Commission’s freedom to copy and take all documents within the scope of even a valid inspection decision is not unfettered, as some Commission officials have suggested. This article discusses the constraints on the Commission’s powers, and by implication those of other competition authorities in Europe.

August 26, 2013 | Permalink | Comments (0) | TrackBack (0)

Saturday, August 24, 2013

Antiust and Civil Rights - I Have a Dream 50 Years Later

Fifty years ago, Martin Luther King gave his famous speech, I Have a Dream, at the march on Washington.  Today's NY Times tells the story of a number of people who were at the Mall in DC that historic day.  One person profiled is Carole Handler, an antitrust-IP practitioner at Lathrope and Gage.

She recalls:

I did not expect the emotional impact of the day to be what it was. Instead of any sense of regimentation or fear, there was such an atmosphere of unity and spirituality and togetherness for the entire day. It was really amazing. I would look into people’s eyes, they would look into my eyes. There are very few experiences that could possibly parallel it.

At the 30th anniversaty of the speech, I was in college and marched on the Mall as part of a much smaller crowd (I went with my good friend from high school and college Adam Bass).  I remember that is was very hot that day and still very moving.  If you would have told me that day that in twenty years: 1. we would have a Black president, 2. that the President would have been my professor in law school, 3. or that I would even have thought about a career in law at all, I would have told you that you were crazy.

While antitrust might not be at the forefront of issues of race, it is at the forefront of issues of justice.  For many, antitrust is a way to right wrongs and to protect consumers.

August 24, 2013 | Permalink | Comments (0) | TrackBack (0)

Friday, August 23, 2013

Merger Remedies in a Small Market Economy: Empirical Evidence from the Baltic States

Posted by D. Daniel Sokol

Alexandr Svetlicinii, European University Institute - Department of Law (LAW) and Kulliki Lugenberg, Estonian Competition Authority - Konkurentsiamet - Merger Control Department discuss Merger Remedies in a Small Market Economy: Empirical Evidence from the Baltic States.

ABSTRACT: The paper represents a comparative study of the merger remedies practices of the three Baltic states: Estonia, Latvia and Lithuania. Based on comprehensive merger control data (2004-2011) and a comparative assessment of merger remedies imposed by the NCAs in the selected economic sectors (telecoms, alcoholic beverages, construction materials, trade in pharmaceuticals) the study identifies trends and tendencies of merger control that are characteristic for small market economies. Despite harmonization of national competition laws and enforcement practices with the EU rules and standards, the study highlights an obvious divergence from the EU guidance expressed in increasing acceptance of behavioral commitments. The results of the assessment indicate the need to develop more specific guidance on behavioral remedies that would better reflect the merger control realities of small market economies.

August 23, 2013 | Permalink | Comments (0) | TrackBack (0)

Close Competitors in Merger Review

Posted by D. Daniel Sokol

Stefan Thomas, Eberhard Karls University Tubingen explores Close Competitors in Merger Review.

ABSTRACT: The analysis of unilateral effects in horizontal mergers—especially on markets for differentiated goods—can take into consideration the extent to which the merging firms are close competitors. The elimination of a close competitor can result in an upward pricing pressure (UPP) on the merged firm which can harm consumers. Although UPP analysis is an important enhancement of substantive merger appraisal, it should not be considered sufficient in itself for the finding of a significant impediment to effective competition in terms of Article 2 of the EU Merger Regulation (EUMR).

August 23, 2013 | Permalink | Comments (0) | TrackBack (0)

An Evaluation of the Enforcement of China's Anti-Monopoly Law in 2008-2013

Posted by D. Daniel Sokol

Liyang Hou, KoGuan Law School, Shanghai Jiao Tong University offers An Evaluation of the Enforcement of China's Anti-Monopoly Law in 2008-2013.

ABSTRACT: The Anti-Monopoly Law of the People’s Republic of China became effective on 1st August 2008. The last five years have seen a decent number of progresses made by the Chinese competition authorities. This article aims to evaluate the enforcement of the AML at its fifth anniversary. It first introduces the process of establishing competition authorities and the adoption of enforcing guidelines, and then provides an overview of public and private enforcement taking place in 2008-2013. The initial impression leads to a finding of in general dissatisfaction from the Chinese public. Nevertheless after an in-depth analysis this article identifies three underlying reasons accounting for such a situation. In the end, some general comments are offered.

August 23, 2013 | Permalink | Comments (0) | TrackBack (0)

Thursday, August 22, 2013

Merger Externalities in Oligopolistic Markets

Posted by D. Daniel Sokol

Klaus Peter Gugler, Vienna University of Economics and Business Administration; European Corporate Governance Institute (ECGI) and Florian Szucs, German Institute for Economic Research (DIW Berlin) Merger Externalities in Oligopolistic Markets explain Merger Externalities in Oligopolistic Markets.

ABSTRACT: We quantify externalities on profitability and market shares of competing firms in oligopolistic markets through the transition from an n to an n-1 player oligopoly after a merger. Competitors are identified via the European Commission’s market investigations and our methodology allows us to distinguish the externality due to the change in market structure from the merger e ffect. We obtain results consistent with the predictions of standard oligopoly models: rivals expand their output and increase their profits, whereas merging firms are negatively aff ected. This indicates that on average the market power e ffects of large mergers outweigh the efficiencies.

August 22, 2013 | Permalink | Comments (0) | TrackBack (0)

Quantifying the Coordinated Effects of Partial Horizontal Acquisitions

Posted by D. Daniel Sokol

Duarte Brito, New University of Lisbon Ricardo Ribeiro, Universidade do Porto - Faculdade de Economia (FEP) and Helder Vasconcelos, Universidade do Porto - Faculdade de Economia (FEP) explore Quantifying the Coordinated Effects of Partial Horizontal Acquisitions.

ABSTRACT: The growth of private-equity investment strategies in which firms often hold partial ownership interests in competing firms has led competition agencies to take an increased interest in assessing the competitive effects of partial horizontal acquisitions. We propose a methodology to evaluate the coordinated effects of such acquisitions in differentiated products industries. The acquisitions may be direct and indirect, and may or not correspond to control. The methodology, that nests full mergers, evaluates the impact on the range of discount factors for which coordination can be sustained. We provide an empirical application to several acquisitions in the wet shaving industry.

August 22, 2013 | Permalink | Comments (0) | TrackBack (0)

Monopoly and Anti Trust Law: Its Development and Significance

Posted by D. Daniel Sokol

Abhay Upadhyay, Gujarat National Law University and Sujoy Sur, Gujarat National Law University analyze Monopoly and Anti Trust Law: Its Development and Significance.

ABSTRACT: This project tries to trace the development of anti-trust laws globally and the roots of the Indian Competition Act, which is the most efficient Competition/Anti-Trust Act in India at present. This paper saliently focuses on the aspects of the Competition Act, 2002 also analyses its very basis of existence by analyzing the MRTP Act and its deficiencies. It also tries to look at the Act from a rational and pragmatic point of view and analyses its relevance and role in the modern Indian economy with the help of a couple of relevant cases. It also holistically analyses the implication of a monopoly and its intrinsic problems for which the anti-trust laws are enacted and promulgated.

August 22, 2013 | Permalink | Comments (0) | TrackBack (0)

Umbrella Effects

Posted by D. Daniel Sokol

Roman Inderst, University of Frankfurt; Imperial College London Frank P. Maier-Rigaud, IESEG School of Management, Department of Economics and Quantitative Methods; Lille - Economics & Management (LEM) - Centre National de la Recherche Scientifique; Organisation for Economic Co-operation and Development (OECD) - Competition Division; European Commission, DG Competition; Laboratory for Experimental Economics, University of Bonn; Max Planck Institute for Research on Collective Goods and Ulrich Schwalbe, University of Hohenheim discuss Umbrella Effects.

ABSTRACT: We analyse the key determinants of umbrella effects, which arise when the price increase or quantity reduction of a cartel diverts demand to substitute products. Umbrella effects arise irrespective of whether non cartelists act as price takers (“competitive fringe”) or respond strategically to the increased demand. Sizable umbrella effects can also arise when non-cartelists are outside the relevant market (in the sense of a SSNIP test), provided that the cartel’s price increase is substantial. Further, a shift of demand to non-cartelists, triggering a price increase, can be induced also when their purchasers themselves benefit from higher demand as rivals purchase from the cartel and pass-on the respective price increase. To identify the actual damage it is thus key to take into account the overall adjustments among cartel members and outsiders as well as their respective, potentially competing purchasers. We also discuss how future analysis of the endogenous formation of cartels with partial market coverage should inform theories of the determinants of umbrella effects.

August 22, 2013 | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 21, 2013

The Market Power Model of Contract Formation: How Outmoded Economic Theory Still Distorts Antitrust Doctrine

Posted by D. Daniel Sokol

Alan Meese (William and Mary) has written on The Market Power Model of Contract Formation: How Outmoded Economic Theory Still Distorts Antitrust Doctrine.

ABSTRACT: For decades courts have premised certain rules of antitrust liability upon the assumption that firms use preexisting market power to “coerce” or “force” trading partners to enter exclusionary agreements. Most notably, courts have held that a monopolist’s “use” of such power to obtain an exclusionary agreement violates § 2 of the Sherman Act, while at the same time presuming that such a use of power, without more, produces economic harm. Following similar logic, courts enforcing § 1 of the Act have banned tying agreements obtained by firms with market power, reasoning that sellers use their power to “force” buyers to enter such contracts and that such “forcing” constitutes antitrust harm. Finally, courts have invoked similar reasoning when holding that dealers or consumers can challenge unlawful agreements they have themselves entered and enforced, disregarding the common law doctrine of in pari delicto (‘in equal fault”) on the grounds that plaintiffs’ participation in such contracts is involuntary, because defendants use market power to impose them.

This article critiques these doctrines and the market power model of contract formation on which they depend, contending that these rules rest upon an outmoded account of the origins and effects of such agreements. In particular, the article locates the origin of the market power model in neoclassical price theory’s model of workable competition, often associated with the “Harvard School” of Antitrust. Assumptions informing the workable competition model excluded the possibility that exclusionary agreements produced benefits, giving rise to the natural inference that firms with market power used that power to impose such contracts against the will of trading partners. Courts embraced the Harvard School account of these agreements and announced hostile doctrines resting upon the assumption that such contracts were expressions of market power “used” to impose them. While Chicago School scholars questioned these doctrines, their critique ironically rested upon a more precise price-theoretic account of how firms purportedly used market power to impose these agreements.

Transaction cost economics (“TCE”) has radically altered economic theory’s explanation for so-called “non-standard contracts,” including “exclusionary” agreements that deprive rivals of access to inputs or customers. Building upon the work of Ronald Coase, scholars have argued that such integration usually reduces transaction costs, particularly anticipated costs of opportunism made possible by relationship-specific investments, without producing anticompetitive harm. TCE has accordingly exercised growing influence over antitrust doctrine, with courts invoking TCE’s teachings to justify revision of some doctrines. Still, old habits die hard, and courts have retained the habit of treating exclusionary agreements — even those that produce benefits — as expressions of market or monopoly power. However, TCE implies that firms can induce voluntary acceptance of these provisions by offering cost-justified discounts to trading partners who agree to them, thereby using the institution of contract to redefine background rights and obligations so as to minimize transaction costs.

To be sure, TCE does not teach that all non-standard agreements reduce transaction costs. Moreover, parallel developments suggest that some such agreements may reduce economic welfare by raising rivals’ costs and conferring market power. Here again, however, there is no reason to believe that proponents of such agreements use market power to imposed them. Instead, proponents can induce input suppliers to enter such contracts voluntarily, simply by sharing with them expected monopoly profits the arrangements will help create. Thus, such agreements are no more “coercive” than ordinary cartel arrangements.

The Article ends by exploring implications of these insights for antitrust doctrine. First, courts should discard substantive antitrust rules that depend upon the “market power” model of contract formation in favor of more direct analysis of the economic impact of challenged practices. Second, courts should reject any effort to infer the existence of such power from the presence of non-standard agreements, because the presence of such agreements is at least equally consistent with a conclusion that they are the result of harmless voluntary integration. Third, courts should discard exceptions to the in pari delicto doctrine based on the “market power” model of contract formation and reconsider current law allowing dealers and consumers to challenge agreements they have voluntarily entered.

August 21, 2013 | Permalink | Comments (0) | TrackBack (0)

Innovation and Optimal Punishment, with Antitrust Applications

Posted by D. Daniel Sokol

Keith Hylton (BU) and Haizhen Lin (Indiana University) have posted Innovation and Optimal Punishment, with Antitrust Applications.

ABSTRACT:This paper modifies the optimal penalty analysis by incorporating investment incentives with external benefits. In the models examined, the recommendation that the optimal penalty should internalize the marginal social harm is no longer valid as a general rule. We focus on antitrust applications. In light of the benefits from innovation, the optimal policy will punish monopolizing firms more leniently than suggested in the standard static model. It may be optimal not to punish the monopolizing firm at all, or to reward the firm rather than punish it. We examine the precise balance between penalty and reward in the optimal punishment scheme.

August 21, 2013 | Permalink | Comments (0) | TrackBack (0)

The Polish Competition Authority Publishes its Annual Report for 2012

Posted by D. Daniel Sokol

Marek Martyniszyn, Queen's University Belfast - School of Law and Maciej Bernatt, University of Warsaw, Centre for Antitrust and Regulatory Studies note that The Polish Competition Authority Publishes its Annual Report for 2012.

ABSTRACT: In May 2013 the President of the Office of Competition and Consumer Protection (UOKiK), the Polish Competition Authority, published its Annual Report for 2012. This piece provides an overview of the reported activities within the competition law & policy domain, and comments on some of them.

August 21, 2013 | Permalink | Comments (0) | TrackBack (0)

The Fight against Cartels: A Transatlantic Perspective

Posted by D. Daniel Sokol

Emilie Dargaud, French National Center for Scientific Research (CNRS) - Institute of Economic Theory and Analysis (GATE); Universite de la Reunion; University of Lyon 2, Andrea Mantovani, University of Bologna and Carlo Reggiani, University of Manchester discuss The Fight against Cartels: A Transatlantic Perspective.

ABSTRACT: The fight against cartels is a priority for antitrust authorities on both sides of the Atlantic. What differs between the EU and the US is not the basic toolkit for achieving deterrence, but to whom it is targeted. In the EU, pecuniary sanctions against the firm are the only instruments available to the Commission, while in the US criminal sanctions are also widely employed. The aim of this paper is to compare two different types of fines levied on managerial firms when they collude. We consider a profit based fine as opposed to a delegation based fine, with the latter targeting the manager in a more direct way. Under the assumption of revenue equivalence, we find that the delegation based fine, although distortive, is more effective in deterring cartels than the profit based one. When evaluating social welfare, a trade-off between deterrence and output distortion can arise. However, if the antitrust authority focuses on consumer surplus, then the delegation based fine is to be preferred.

August 21, 2013 | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 20, 2013

Should We Believe in the Reassuring Nature of the Chicagoan Notion of Competition Law?

Posted by D. Daniel Sokol

Mariateresa Maggiolino, Bocconi University asks Should We Believe in the Reassuring Nature of the Chicagoan Notion of Competition Law?

ABSTRACT: If we wonder about the reasons why current antitrust scholars would like to resist the new regulatory approach to competition law, two lines of arguments arise – that concerning the risk of making mistakes because of enforcers’ ignorance, and that concerning the risk of making mistakes because of enforcers’ permeability to values and political ideas. Limiting enforcers’ ignorance is always appreaciable, especially because – in the end – this limitation amounts to the request of a good division of work between antitrust enforcers and regulators. Differently, the ease with which Chicagoan antitrust law is deemed to be neutral and, hence, preferable to any form of regulation is questionable. Chicagoan antitrust law is technical in its operations, but not in its premises and results and this, I believe, should be taken into account anytime we choose whether to like or dislike the emerging regulatory approach towards competition law.

August 20, 2013 | Permalink | Comments (0) | TrackBack (0)