Saturday, November 23, 2013

RPM Under EU Competition Law: Some Considerations From a Business and Economic Perspective

Andres Font-Galarza & Pablo Figueroa (Gibson, Dunn) & Frank Maier-Rigaud (NERA) discuss RPM Under EU Competition Law: Some Considerations From a Business and Economic Perspective.

ABSTRACT: Resale or retail price maintenance refers to an agreement between an upstream and a downstream firm in a vertical value chain concerning the retail level price. RPM refers either to a maximum, a minimum, or a fixed price that retailers agree to charge their customers.

At first sight it may seem counterintuitive for a manufacturer to enter into an agreement that seemingly only aims at guaranteeing the retailer a certain margin that cannot be competed away and that the manufacturer may potentially have forfeited. Indeed, RPM arrangements can not only be counter-intuitive but also anticompetitive, particularly when they function as the tip of the iceberg of a hub-and-spoke horizontal collusion system. In light of the controversial legal debate on how to characterize RPM from a competition point of view, section II briefly describes the evolution of EU policy and the current legal situation concerning. Section III contains an overview of the main efficiency justifications advanced in the economic literature, focusing on horizontal and vertical externalities but also on the particularities of the so-called Veblen goods. Section IV draws on both previous sections in discussing nuances that can already be identified in the Commission's most recent guidelines and that may be indicative of a coming more economic approach also regarding RPM. In light of the economic literature and the efficiency justifications acknowledged in the guidelines, the concluding section hints at the possibility that the times of RPM as hardcore restraint may soon be over and that, meanwhile, the time may be ripe, under certain circumstances, for a successful efficiency defense of certain RPM practices under Article 101(3) TFEU.

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

Friday, November 22, 2013

The Empty Promise of Behavioral Antitrust

Alan Devlin (Latham) and Mike Jacobs (Depaul) describe The Empty Promise of Behavioral Antitrust.

ABSTRACT: Microeconomic theory has long guided competition law. Using price- and game-theoretic models, antitrust has settled on rules that have endured because they are more coherent, easier to understand, and simpler to apply than any other methodology. In application, those rules predict the market consequences of business transactions innumerable in form and uncertain in outcome. But this coherent framework is now under attack. Entranced by the larger “behavioral law and economics” movement, certain academics have questioned the pillars of doctrine built upon the foundation of rational-choice theory. On their view, bounded rationality, willpower, and self-interest afflict firms’ and consumers’ decision making, inducing systemic departures from the predictions of neoclassical economics and game theory. Current antitrust laws, they argue, fail to account for those departures from rationality. Since these rules and standards produce what they regard as unduly permissive treatment, behavioral-antitrust scholars urge more-interventionist policy.

This Article contends that, whatever its virtues for the larger field of law and economics, behavioral economics can play no useful role in contemporary antitrust policy. It is hopelessly vague, untethered to a theory, and reliant on biases that routinely operate in opposing directions. While it can sometimes describe the past, it is incapable of predicting the future: a fatal shortcoming for any method of antitrust analysis. We test whether behavioral antitrust can produce a coherent theory for predicting the market effects of impugned restraints on trade and exclusionary conduct. In doing so, we show that the biases prove either too much — all results are possible — or too little, canceling themselves out and reverting to the (rational) mean. The suggested utility of behavioral antitrust depends entirely upon which biases are thought to explain the conduct in question. But since the movement lacks any method for determining the explanatory power of a particular bias ex ante, choosing between conflicting biases is either a random act or a political one. We also show what the behavioralists must be loath to mention. Despite the claimed empirical superiority of behavioral antitrust, the psychological literature has failed to supply it with the evidence or theory critical for its application. That is the frequency with which, and the situations when, one set of biases dominates others. Without this key bit of inductive fact or deductive logic, all that remains of the approach is conjecture, at best, or cynical manipulation. We conclude that the behavioral movement is a non-event for antitrust policy today.

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

Bundling Incentives in Markets with Product Complementarities: The Case of Triple-Play

Joao Carlos Macieira Virginia Polytechnic Institute & State University - Department of Economics, Pedro Pereira, Autoridade da Concorrencia and Joao Vareda, Autoridade da Concorrencia discuss Bundling Incentives in Markets with Product Complementarities: The Case of Triple-Play.

ABSTRACT: We analyze firms’ incentives to bundle and tie in the telecommunications industry. As a first step, we develop a discrete-choice demand model where firms sell products that may combine several services in bundles, and consumers choose assortments of different types of products available from various vendors. Our approach extends standard discrete-choice demand models of differentiated product to allow for both flexible substitution patterns and to map demand for each choice alternative onto the demand for each service or bundle that a firm may sell. We exploit these properties to examine bundling behavior when firms choose: (i) prices, and (ii) which products to sell. Using consumer-level data and survey data from the Portuguese telecommunications industry, we estimate our demand model and identify firm incentives to bundle and tie in this industry. We use the model to perform several policy related conterfactuals and evaluate their impact on prices and product provision.

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

Professor Daniel Sokol Talks Antitrust, FRAND and Florida Alligators

TAP on its site has published a Q&A interview with me on antitrust issues.

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

Cartel Leniency and Effective Compensation in Europe: The Aftermath of Pfleiderer

Bruce Wardhaugh, School of Law--Queen's University Belfast discusses Cartel Leniency and Effective Compensation in Europe: The Aftermath of Pfleiderer.

ABSTRACT: The recent judgment in Pfleiderer exposes a tension between two goals of European cartel control policy: the ex ante desire to prevent and deter the formation of cartels, and the ex post desire to ensure an effective means by which victims of such conduct can have their harms redressed. The former goal is advanced by way of the administrative enforcement enhanced by a leniency programme, the latter by actions for damages at a decentralised, member state level. Leniency programmes are used to facilitate the acquisition of information by public agencies, but they have the effect of potentially providing information to private parties which can enhance cartel members’ exposure to damages. This paper considers Pfleiderer and other European and national court decisions which follow it, along with the recent Proposed Directive which aims to not just the enhance relationship between public and private enforcement, but also to improve the efficacy of private damages schemes in Europe. I argue that although the judgement in Pfleiderer has significantly hindered European leniency schemes, the initiatives made in the Proposed Directive are steps forward. However, additional changes to harmonise public and private enforcement may be additional steps too far at this point in time.

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

Thursday, November 21, 2013

Consumer Welfare in Competition and Intellectual Property Law

Herb Hovenkamp (Iowa) discusses Consumer Welfare in Competition and Intellectual Property Law.

ABSTRACT: Whether antitrust policy should pursue a goal of "general welfare" or "consumer welfare" has been debated for decades. The academic debate is much more varied than the case law, however, which has consistently adopted consumer welfare as a goal, almost never condemning a practice found to produce an actual output reduction or price increase simply because productive efficiency gains accruing to producers exceeded consumer losses.

Antitrust's focus on consumer welfare is well justified. While some practices such as mergers might produce greater gains in productive efficiency than losses in consumer welfare, identifying such situations would be extraordinarily difficult. First, these efficiencies would have to be "transaction specific," meaning that they could not be attained by other means. Given the widespread availability of alternatives such as nonexclusive licensing, transaction specific efficiencies are the exception rather than the rule. Second, these would necessarily be gains that accrue at lower output levels than previous to the practice; otherwise there would be no consumer harm to balance. But most efficiency gains accrue at higher rather than lower output levels. Third, collusion facilitating practices spread welfare losses across an entire industry, while production gains typically accrue only to the participants in a merger or similar practice. Fourth, the reigning tradeoff models generally assume a market that was competitive prior to the practice and became monopolized after. Most practices that facilitate the exercise of market power occur in markets that were significantly noncompetitive to begin with. In these situations consumer losses are relatively larger and producer gains smaller. Finally, the administrative problems of computing actual efficiency gains and netting them against actual consumer losses would be heroic. It would require estimates about loss of consumers' or producers' surplus in an area of the demand curve where there is currently no production. Computing deadweight loss is far more difficult than computing a simple overcharge on already made sales. As a result, antitrust analysis without significant exception proceeds by condemning practices that result in lower output and higher prices. Efficiencies change outcomes only when they are sufficient to keep output at or above pre-practice levels, which means that there is no consumer harm at all and nothing to trade off. In contrast to the voluminous literature on welfare tests for antitrust policy, relatively little has been written about consumer welfare and intellectual property law. A well functioning IP system would increase consumer welfare in both the short and long run. That is, no tradeoff need be made between lost consumer surplus and productive efficiency. In the imperfect system that we have, however, consumer losses do occur, mainly when exclusive IP rights are given in excess of what optimal innovation policy requires, or when the rights are given to things that would have been developed (or have already been developed) anyway by ordinary market processes. Unfortunately, the extent of producer capture in the IP law making process is as great or even greater than it is in antitrust.

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

A Meta-Study of Merger Retrospectives in the United States

Malcolm Coate (FTC) offers A Meta-Study of Merger Retrospectives in the United States.

ABSTRACT: Over the last decade, merger retrospectives have become increasingly popular. However, it is far from clear what implications can be drawn from these analyses, because the results suffer from sample selection problems. This paper uses models of FTC enforcement activity to estimate challenge probabilities and address the selection issue. Although the small size of the meta-study panel limits the interpretation of the results, general observations are possible. First, significant price effects appear in the matters with very high challenge probabilities. When challenge probabilities are moderate, roughly 30-60 percent, retrospective results generate price effects in half the studies. For low challenge probabilities, no price effects are observed in the retrospectives related to collusion theories. Positive effects are observed for retrospectives in some consumer goods markets, but theoretical analysis implies these results are questionable. Although retrospectives, interpreted in light of the likely competitive concern, can serve as a test for merger policy, policy predictions also serve as a test of the credibility of the results of a retrospective

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

Beyond Naked Exclusion: Exclusive Dealing after Dentsply

Robert B. Kulick, University of Maryland has written on Beyond Naked Exclusion: Exclusive Dealing after Dentsply.

ABSTRACT: Although many have come to regard the collection of models that predict anticompetitive consequences from strategic conduct by dominant firms as a “post-Chicago” revolution, the canonical post-Chicago “Naked Exclusion” theory of exclusive dealing maintains the fundamental Chicago structure where exclusive dealing is modeled as a contract driven quid pro quo. However, in the highly influential case U.S. v. Dentsply, the Third Circuit analyzed exclusive dealing in terms of a discriminatory refusal to deal where buyers received no compensation for exclusivity. This article develops a model of exclusive dealing consistent with Dentsply and many other major antitrust cases.

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

EU Competition Policy since 1990: How Substantial Is Convergence Towards U.S. Antitrust?

Dzmitry Bartalevich, Copenhagen Business School asks EU Competition Policy since 1990: How Substantial Is Convergence Towards U.S. Antitrust?

ABSTRACT: In spite of the evidence of strong influence on the incorporation of policy provisions from the U.S. antitrust into the recent competition policy reforms in the European Union (EU), few considerable attempts have been made to analyze the influence of U.S. antitrust on EU competition policy in anticartel enforcement policies, antimonopoly regulation, and the regulation of mergers and acquisitions. The purpose of this article is to fill the gap by attempting to link EU competition policy with U.S. antitrust, provide a critical overview of the most important elements of European competition policy reforms, carry out a comparative analysis between EU and U.S. competition policies, detect convergence or divergence, and account for the degree of convergence and for the relevant mechanisms triggering convergence. The main focus is on the analysis of anticartel enforcement policy, antimonopoly policy, and merger control.

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

Wednesday, November 20, 2013

Loyalty discounts and theories of harm in the Intel investigations

Patrick DeGraba (FTC) and John Simpson (Brattle Group) examine Loyalty discounts and theories of harm in the Intel investigations.

ABSTRACT: In its investigation of Intel, the Federal Trade Commission appears to have been pursuing a ‘downstream competition’ theory of harm, in which Intel Corporation made fixed payments to original equipment manufacturers (OEMs) in exchange for not using AMD processors. This allowed Intel to charge supra-competitive processor prices to OEMs and allowed OEMs to charge supra-competitive computer prices to consumers thereby extracting supra-competitive rents from computer markets. These rents finance the payments for exclusivity. This article uses public documents to illustrate the types of evidence that would be needed to prove the existence of harm under this theory. It also identifies the type of evidence used by the European Commission when it analysed Intel’s practices under its As Efficient Competitor Test. Finally, it highlights major differences between the two theories.

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

The Interaction between Competition Law and State Action: Looking Inside the Black Box (of the State)

Ioannis Lianos (UCL) describes The Interaction between Competition Law and State Action: Looking Inside the Black Box (of the State).

ABSTRACT: Current accounts of the interaction between competition law and state activities are based on a clear-cut old liberalism style distinction between "state"/"government" and "market", which do not take into account the emergence of the neo-liberal state. By doing so, they also ignore the multi-faceted nature of the concept of "state", and the important inputs of political science and sociological literature on the different forms of state and the role of public bureaucracies/or technocracies. By advancing a "bureaucracy-centred" theory of the competition law and state interaction, this chapter aims to offer an alternative theoretical framework that can be successfully transposed into different institutional and cultural settings.

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

Estimating Consumer Damages in Cartel Cases

Ulrich Laitenberger, Centre for European Economic Research (ZEW) - Industrial Economics and International Management Research and Florian Smuda, Centre for European Economic Research (ZEW) are Estimating Consumer Damages in Cartel Cases.

ABSTRACT: We use consumer panel data to calculate the damage suffered by German consumers due to a detergent cartel that was active between 2002 and 2005 in eight European countries. Applying before-and-after and difference-in-differences estimations we find average overcharges between 6.7 and 6.9 percent and an overall consumer damage of about 13.2 million Euro over the period from July 2004 until March 2005. Under the assumptions that the cartel-induced share on turnover is representative for the entire cartel period and all affected markets, the overall consumer damage would even sum up to about 315 million Euro. Our results further suggest that the retailers reacted to the price increases of the cartel firms via price increases for their own detergent products, resulting in significant umbrella effects. We quantify the damage due to this umbrella pricing to a total of about 7.34 million Euro. With respect to the discussion whether special procedures for bringing collective actions should be available in the EU, our results are important to the extent that we show how consumer associations can use consumer panel data in order to claim damages before national courts and thereby actively fulfill their mandate of consumer protection.

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

When (Not) to Segment Markets

Catherine Gendron-Saulnier, University of Montreal - Department of Economics and Marc Santugini, HEC Montreal explain When (Not) to Segment Markets.

ABSTRACT: A monopoly decides whether to segment two separate markets. Demand depends on stochastic shocks and some buyers are uninformed about the quality of the good. Contrary to the case of complete information, we show that it is not always more profitable for the firm to segment the markets in an environment in which some buyers have incomplete information. The reason is that the presence of uninformed buyers provides the firm with the incentive to engage in noisy price-signaling. Indeed, if the benefit from price flexibility (through market segmentation) is offset by the cost of signaling quality through two distinct prices, then it is optimal not to segment the markets and to use uniform pricing.

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

An Economic Approach to Price Fixing

Louis Kaplow (Harvard) offers An Economic Approach to Price Fixing.

ABSTRACT: This article examines optimal policy toward coordinated oligopolistic price elevation. First, it analyzes the social welfare implications of enforcement, elaborating the value of deterrence and the nature of possible chilling effects. Then, it explores a variety of means of detection, with particular attention to the sorts of errors that may arise under each. Finally, it examines the level and type of sanctions that should be employed. It emerges that there is remarkably little overlap in content between the present investigation and prior legal policy work on the subject. Some central issues have been ignored while particular resolutions of others have been taken for granted, thereby indicating the need for wholesale reassessment.

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

Tuesday, November 19, 2013

History of Competition Policy in Brazil: 1930-2010

Francisco Todorov, Baker & McKenzie and Marcelo Maciel Torres Filho, Trench, Rossi e Watanabe Advogados offer a History of Competition Policy in Brazil: 1930-2010.

ABSTRACT: As Brazil moved from a highly controlled and concentrated economy to a freer and more competitive one, the antitrust regime developed. The article outlines this historical process. We begin by addressing how the first norms with antitrust-like provisions were created from the 1930s until 1962. We then discuss the difficult operation of the competition authority (CADE) during the military regime from 1964 to 1985. After examining a transition period marked by democratization and a new constitutional der, we correlate the market-oriented reforms of the 1990s with what became the first antitrust statute to be effectively implemented. We then present the more well-known history of this 1994 statute: the initial focus on merger control and the subsequent shift toward cartel enforcement. The article concludes by examining the main challenges facing the Brazilian competition authorities today, including the implementation of the new antitrust statute passed in December 2011.

November 19, 2013 | Permalink | Comments (0) | TrackBack (0)

The Regulation of Prescription Drug Competition and Market Responses: Patterns in Prices and Sales Following Loss of Exclusivity

Murray L. Aitken,IMS Institute for Healthcare Informatics, Ernst R. Berndt, MIT Barry Bosworth, Brookings Iain M. Cockburn, Boston University, Richard Frank, Harvard Medical School, Michael Kleinrock, IMS Institute for Healthcare Informatics and Bradley T. Shapiro, MIT analyze The Regulation of Prescription Drug Competition and Market Responses: Patterns in Prices and Sales Following Loss of Exclusivity.

ABSTRACT: We examine six molecules facing initial loss of US exclusivity (LOE, from patent expiration or challenges) between June 2009 and May 2013 that were among the 50 most prescribed molecules in May 2013. We examine prices per day of therapy (from the perspective of average revenue received by retail pharmacy per day of therapy) and utilization separately for four payer types (cash, Medicare Part D, Medicaid, and other third party payer - TPP) and age under vs. 65 and older. We find that quantity substitutions away from the brand are much larger proportionately and more rapid than average price reductions during the first six months following initial LOE. Brands continue to raise prices after generics enter. Expansion of total molecule sales (brand plus generic) following LOE is an increasingly common phenomenon compared with earlier eras. The number of days of therapy in a prescription has generally increased over time. Generic penetration rates are typically highest and most rapid for TPPs, and lowest and slowest for Medicaid. Cash customers and seniors generally pay the highest prices for brands and generics, third party payers and those under 65 pay the lowest prices, with Medicaid and Medicare Part D in between. The presence of an authorized generic during the 180-day exclusivity period has a significant impact on prices and volumes of prescriptions, but this varies across molecules.

November 19, 2013 | Permalink | Comments (0) | TrackBack (0)

Comment on FTC Strategic Plan 2014-2018

James Cooper (George Mason) offers a Comment on FTC Strategic Plan 2014-2018.

ABSTRACT: This comment on the Federal Trade Commission’s (FTC) draft Strategic Plan FY 2014-FY 2018 addresses two areas that the Commission should consider. First, the Commission should integrate economic analysis into its consumer protection mission to the same degree that it has into its competition mission. Such integration will aid the Commission in allocating resources in the manner that maximizes consumer benefits. Second, the FTC should include countervailing negative impacts on consumers – through, for example, adverse effects on competition, reductions in marketplace information, or reduced incentives to innovate – when setting priorities for, and assessing the performance of, its consumer protection mission.

November 19, 2013 | Permalink | Comments (0) | TrackBack (0)

Too little, too late? The European Commission's Legislative Proposals on Anti-Trust Damages Actions

Anneli Howard (Monckton Chambers) asks Too little, too late? The European Commission's Legislative Proposals on Anti-Trust Damages Actions.

ABSTRACT: The Commission recently proposed a Directive establishing compensatory principles for damages actions open to all direct and indirect purchasers with harmonized pass-on defence. That draft attempts to encourage damage actions from consumers/SMEs by introducing evidential presumptions for the establishment and the quantification of harm. A question raised by the document is whether the introduction of minimum standards for disclosure across 28 Member State strikes an effective balance between protecting leniency regime and remedying information asymmetry. It remains to be seen whether the proposal will really achieve the internal market agenda and ensure equal access to justice and adequate compensation for victims.

November 19, 2013 | Permalink | Comments (0) | TrackBack (0)

Monday, November 18, 2013

The FTC: a Tough Data Security Cop

David Balto has written in the Huffington Post on The FTC: a Tough Data Security Cop. He also has an op-ed on A tale of two antitrust agencies.

November 18, 2013 | Permalink | Comments (0) | TrackBack (0)

Section 5 of the FTC Act and the Need for Guidelines

Dan Crane (Michigan) discusses Section 5 of the FTC Act and the Need for Guidelines.

ABSTRACT: FTC Commissioners Wright and Olhausen recently have argued that the FTC should issue a policy statement or guidelines regarding enforcement of Section 5 of the FTC Act to create liability for unfair methods of competition beyond the Sherman Act's reaches. I have previously articulated my own views on what the substantive principles governing the reach of Section 5 should be. In this essay, I wish to join forces with Commissioners Wright and Olhausen in calling for the promulgation of guidance from the FTC on Section 5 enforcement. I will argue that, like Ulysses, the Commission should bind itself to the mast, not merely to decrease its temptation to heed the Sirens' call, but, ultimately, to increase the likelihood that its Section 5 decisions will buck the trend of history and survive judicial review.

November 18, 2013 | Permalink | Comments (0) | TrackBack (0)